Friday, June 30, 2017

Vehicle Sales Forecast: "Sixth Consecutive Decline in June"

by Bill McBride on 6/30/2017 04:59:00 PM

The automakers will report June vehicle sales on Monday, July 3rd.

Note: There were 26 selling days in June 2017, the same as in June 2016.

From WardsAuto: U.S. Forecast: Sixth Consecutive Decline in June

A WardsAuto forecast calls for U.S. automakers to deliver 1.50 million light vehicles in June. A daily sales rate of 57,762 units over 26 days represents a 0.7% decline from like-2016 (also 26 days).
...
The report puts the seasonally adjusted annual rate of sales for the month at 16.82 million units, above year-ago’s 16.77 million and May’s 16.58 million mark. ...

WardsAuto is forecasting U.S. sales of 17.1 million units in calendar-year 2017. The outlook assumes a sales surge in the summer caused by deep price discounting or other means to trim the excess stock. If inventory is not cut by 400,000 to 500,000 units by September, another sell-off is possible in Q4, probably December. Without such a surge, sales are heading to 16.8 million units for the year.
emphasis added
From Reuters: U.S. auto sales seen down 2 percent in June: JD Power and LMC
The seasonally adjusted annualized rate for the month will be 16.5 million vehicles, down nearly 2 percent from 16.8 million units in the same month in 2016.
Overall sales are down from the record in 2016.

U.S. Births decreased in 2016, Women 30-34 Now have Highest Birth Rate

by Bill McBride on 6/30/2017 12:57:00 PM

From the National Center for Health Statistics: Births: Provisional Data for 2016. The NCHS reports:

The provisional number of births for the United States in 2016 was 3,941,109, down 1% from 2015. The general fertility rate was 62.0 births per 1,000 women aged 15–44, down 1% from 2015 to a record low for the United States. ...

The provisional birth rates for teenagers aged 15–17 and 18–19 were 8.8 and 37.5 births per 1,000 women, respectively, down by 11% and 8% from 2015 and record lows for both groups.
...
The provisional birth rate for women aged 20–24 was 73.7 births per 1,000 women in 2016, a decline of 4% from 2015 (76.8), reaching again another record low for this age group.
...
The rate for women aged 25–29 was 101.9 births per 1,000 women, down 2% from 2015 (104.3) and another record low for this age group.
...
The provisional birth rate for women aged 30–34 in 2016 was 102.6 births per 1,000 women, up 1% from 2015 (101.5) to the highest rate for this age group since 1964.
...
The provisional birth rate for women aged 40–44 in 2016 was 11.4 births per 1,000 women, up 4% from 2015 (11.0) to the highest rate for this age group since 1966.
Here is a long term graph of annual U.S. births through 2016 ...

U.S. Births per Year Click on graph for larger image.

Births have declined for two consecutive years following increases in 2013 and 2014.

A key trend is that women are waiting longer to have babies. Waiting longer to have children makes sense (see: Demographics and Behavior and U.S. Demographics: The Millennials Take Over) and we should expect a baby boom in a few years as the largest cohorts move into the 25 to 34 years old age groups.

I expect that as families have babies, they will tend to buy homes (as opposed to rent).   The demographics are favorable for renting now, but the demographics will become more positive for homeownership.

U.S. Births per YearThe second graph is from the NCHS report and shows birth rates by age group.

From the NCHS:
The rate for women aged 25–29 was 101.9 births per 1,000 women, down 2% from 2015 (104.3) and another record low for this age group.
...
The provisional birth rate for women aged 30–34 in 2016 was 102.6 births per 1,000 women, up 1% from 2015 (101.5) to the highest rate for this age group since 1964.
Note that the highest birth rate is now for women in the 30 to 34 age group!

U.S. Births per YearThe third graph is from the NCHS report and shows births per 1,000 women by teen age group. From the NCHS:
The provisional birth rates for teenagers aged 15–17 and 18–19 were 8.8 and 37.5 births per 1,000 women, respectively, down by 11% and 8% from 2015 and record lows for both groups.
Far fewer teens births is great news (and is probably related to the much higher enrollment rates).

Chicago PMI Increases in June, Highest in Three Years

by Bill McBride on 6/30/2017 10:05:00 AM

From the Chicago PMI: June Chicago Business Barometer at 65.7 vs 59.4 in May

The MNI Chicago Business Barometer rose to 65.7 in June from 59.4 in May, the highest level in over three years.
...
“June’s MNI Chicago Business Barometer Survey is a testament to firms’ expectations of a busy summer. With Production and New Orders touching levels not seen in three years, rising pressure on backlogs and delivery times has led to higher optimism among firms both in general business conditions and the local economy,” said Shaily Mittal, Senior Economist at MNI Indicators.
emphasis added
This was well above the consensus forecast.

Personal Income increased 0.4% in May, Spending increased 0.1%

by Bill McBride on 6/30/2017 08:40:00 AM

The BEA released the Personal Income and Outlays report for May:

Personal income increased $67.1 billion (0.4 percent) in May according to estimates released today by the Bureau of Economic Analysis. ... personal consumption expenditures (PCE) increased $7.3 billion (0.1 percent).
...
Real PCE increased 0.1 percent. The PCE price index decreased 0.1 percent. Excluding food and energy, the PCE price index increased 0.1 percent.
The May PCE price index increased 1.4 percent year-over-year and the May PCE price index, excluding food and energy, increased 1.4 percent year-over-year.

The following graph shows real Personal Consumption Expenditures (PCE) through May 2017 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Personal Consumption Expenditures Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The increase in personal income was above expectations,  and the increase in PCE was at expectations.

Using the two-month method to estimate Q2 PCE growth, PCE was increasing at a 3.5% annual rate in Q2 2017. (using the mid-month method, PCE was increasing 3.7%). This suggests decent PCE growth in Q2.

Thursday, June 29, 2017

Friday: Personal Income and Outlays, Chicago PMI

by Bill McBride on 6/29/2017 08:51:00 PM

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

Mortgage rates are higher again today, with the average lender now back to levels not seen since May 16th, 2017.  Unless you've been following every little day-to-day change in rates, the apparent drama over the past few days is laughable.  In the worst cases, some borrowers are now seeing rate quotes that are an eighth of percentage point higher than those seen on Monday morning. [30 year fixed 4% for top scenarios]
emphasis added
Friday:
• At 8:30 AM ET, Personal Income and Outlays for May. The consensus is for a 0.3% increase in personal income, and for a 0.1% increase in personal spending. And for the Core PCE price index to increase 0.1%.

• At 9:15 AM, Chicago Purchasing Managers Index for June. The consensus is for a reading of 58.2, down from 59.4 in May.

• At 10:00 AM, University of Michigan's Consumer sentiment index (final for June). The consensus is for a reading of 94.5, from the preliminary reading 94.5.

Fannie Mae: Mortgage Serious Delinquency rate declined in May, Lowest since December 2007

by Bill McBride on 6/29/2017 04:17:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined to 1.04% in May, from 1.07% in April. The serious delinquency rate is down from 1.38% in May 2016.

This is the lowest serious delinquency rate since December 2007.

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

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

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Although the rate is declining, the "normal" serious delinquency rate is under 1%. 

The Fannie Mae serious delinquency rate has fallen 0.34 percentage points over the last year, and at that rate of improvement, the serious delinquency rate will below 1% this Summer.

Note: Freddie Mac reported earlier.

Reis: Office Vacancy Rate "flat" in Q2 at 16.0%

by Bill McBride on 6/29/2017 12:17:00 PM

Reis released their Q2 2017 Office Vacancy survey this morning. Reis reported that the office vacancy rate was unchanged at 16.0% in Q2, from 16.0% in Q1. This is down from 16.1% in Q1 2016, and down from the cycle peak of 17.6%.

From Reis Economist Barbara Denham: Office Vacancy Holds Steady at 15.8%; Rents Increase 0.5% in the Quarter. Vacancy Increases in 42 U.S. Metros, but only 10 See Effective Rent Decline.

The Office Vacancy Rate remained flat in the second quarter at 16.0%. Asking rents increased 0.4% in the quarter and only 1.6% since the second quarter of 2016 – the lowest annual rate since 2011.

Continuing its lackluster pace, the Office market recorded the lowest quarterly net absorption in three years as the vacancy rate remained flat at 16.0%. One year ago, the vacancy rate was 16.1%. In the last expansion, the U.S. vacancy rate had fallen from a high of 17.0% in 2003 to a low of 12.5% in 2007. In the current expansion that is now seven quarters longer than the previous expansion, the vacancy rate has fallen from a high of 17.6% to only 16.0% as tenants have leased far fewer square feet per added employee than in past cycles.

New construction of 7.5 million square feet was also low by historic standards, but developers have been cautious throughout these last few years and have expanded the office supply at a less aggressive rate than in previous cycles. Net absorption, or occupancy growth, of 3.3 million square feet was the lowest since the second quarter of 2014. ...
Office Vacancy Rate Click on graph for larger image.

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis reported the vacancy rate was at 16.0% in Q2.  The office vacancy rate is moving sideways at an elevated level.

Office vacancy data courtesy of Reis.

Q1 GDP Revised up to 1.4% Annual Rate

by Bill McBride on 6/29/2017 08:39:00 AM

From the BEA: Gross Domestic Product: First Quarter 2017 (Third Estimate)

Real gross domestic product (GDP) increased at an annual rate of 1.4 percent in the first quarter of 2017, according to the "third" estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2016, real GDP increased 2.1 percent.

The GDP estimate released today is based on more complete source data than were available for the "second" estimate issued last month. In the second estimate, the increase in real GDP was 1.2 percent. With the third estimate for the first quarter, personal consumption expenditures (PCE) and exports increased more than previously estimated, but the general picture of economic growth remains the same ...
emphasis added
Here is a Comparison of Third and Second Estimates. PCE growth was revised up from 0.6% to 1.1%. (still soft PCE, but better than the 0.3% reported in the Advance estimate of GDP). Residential investment was revised down slightly from 13.8% to +13.0%. This was above the consensus forecast.

Weekly Initial Unemployment Claims increase to 244,000

by Bill McBride on 6/29/2017 08:34:00 AM

The DOL reported:

In the week ending June 24, the advance figure for seasonally adjusted initial claims was 244,000, an increase of 2,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 241,000 to 242,000. The 4-week moving average was 242,250, a decrease of 2,750 from the previous week's revised average. The previous week's average was revised up by 250 from 244,750 to 245,000.
emphasis added
The previous week was revised up.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 242,250.

This was higher than the consensus forecast.

The low level of claims suggests relatively few layoffs.

Wednesday, June 28, 2017

Thursday: Unemployment Claims, GDP

by Bill McBride on 6/28/2017 08:49:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Highest in More Than 2 Weeks

Mortgage rates moved moderately higher again today, as investors continued digesting the possibility of a "taper tantrum" in Europe.
...
The average lender is once again quoting 4.0% on top tier conventional 30yr fixed scenarios.  Before today (and especially before yesterday), 3.875% was fairly prevalent.
emphasis added
Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 239 thousand initial claims, down from 241 thousand the previous week.

• Also at 8:30 AM, Gross Domestic Product, 1st quarter 2017 (Third estimate). The consensus is that real GDP increased 1.2% annualized in Q1, unchanged from the second estimate of 1.2%.

• Early, Reis Q2 2017 Office Survey of rents and vacancy rates.

Zillow Forecast: "May Case-Shiller Forecast: Expect the Cooldown to Continue"

by Bill McBride on 6/28/2017 03:21:00 PM

The Case-Shiller house price indexes for April were released yesterday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Svenja Gudell at Zillow: May Case-Shiller Forecast: Expect the Cooldown to Continue

On the heels of a larger-than-expected slowdown in April, Zillow anticipates Case-Shiller data to show a continued cooling in home price growth in May almost across the board, with prices even falling slightly from April in one key index.

Annual growth in all three main indices – the 10-city Composite, 20-city Composite and U.S. National Index – is expected to slow to 4.8 percent, 5.5 percent and 5.3 percent year-over-year growth in May, respectively, down from  4.9 percent, 5.7 percent and 5.5 percent in April. The U.S. National Index is expected to grow by a seasonally adjusted 0.2 percent in May from April, while prices will be unchanged from April on the 20-city Composite Index. Home prices are expected to fall by 0.1 percent from April to May on the smaller 10-city Composite Index (seasonally adjusted).

April’s slower-than-expected growth caught some analysts off-guard, especially the monthly figures. One potential reason cited for the surprise to the downside could be related to the difficulty in seasonally adjusting a repeat-sales index like Case-Shiller’s. Over the long term, Zillow’s monthly forecast of Case-Shiller data has proven remarkably accurate, thanks in large part to differences in methodology between Case-Shiller’s indices and Zillow’s, and the timeliness and granularity of data collected.

Zillow’s full forecast for May Case-Shiller data is shown below. These forecasts are based on today’s April Case-Shiller data release and the May 2017 Zillow Home Value Index. The May S&P CoreLogic Case-Shiller Indices will not be officially released until Tuesday, July 25.
The year-over-year change for the Case-Shiller National index will probably be smaller in May than in April.

Zillow forecast for Case-Shiller

Reis: Mall Vacancy Rate increased in Q2 2017

by Bill McBride on 6/28/2017 12:11:00 PM

Reis reported that the vacancy rate for regional malls was 8.1% in Q2 2017, up from 7.9% in Q1, and up from 7.9% in Q2 2016. This is down from a cycle peak of 9.4% in Q3 2011.

For Neighborhood and Community malls (strip malls), the vacancy rate was 10.0% in Q2, up from 9.9% in Q1, and up from 9.8% in Q2 2016. For strip malls, the vacancy rate peaked at 11.1% in Q3 2011.

Comments from Reis Economist Barbara Byrne Denham:

The Retail Vacancy Rate increased 0.1% in the second quarter to 10.0%. Asking rents increased 0.4% in the quarter that saw new stores opening on par with the number that closed. The Mall Vacancy Rate increased 0.2% to 8.1%. Mall Rents also increased 0.4%.

Defying the doom and gloom aired in media reports, the retail real estate market posted positive net absorption in the second quarter. The vacancy rate increased a bit due to new construction that was only partially absorbed by new leasing. Still, the vacancy rate increase from 9.9% to 10.0% was smaller than most expected.

The increase in the Mall vacancy rate was due to confirmed closings of Macy’s stores.
emphasis added
Mall Vacancy Rate Click on graph for larger image.

This graph shows the strip mall vacancy rate starting in 1980 (prior to 2000 the data is annual). The regional mall data starts in 2000. Back in the '80s, there was overbuilding in the mall sector even as the vacancy rate was rising. This was due to the very loose commercial lending that led to the S&L crisis.

In the mid-'00s, mall investment picked up as mall builders followed the "roof tops" of the residential boom (more loose lending). This led to the vacancy rate moving higher even before the recession started. Then there was a sharp increase in the vacancy rate during the recession and financial crisis.

Recently both the strip mall and regional mall vacancy rates have increased slightly from an already elevated level.

Mall vacancy data courtesy of Reis.

NAR: Pending Home Sales Index decreased 0.8% in May, down 1.7% year-over-year

by Bill McBride on 6/28/2017 10:04:00 AM

From the NAR: Pending Home Sales Tumble in May for Third Straight Month

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 0.8 percent to 108.5 in May from a downwardly revised 109.4 in April. The index is now 1.7 percent below a year ago, which marks the second straight annual decline and the most recent since November and December of last year.
...
The PHSI in the Northeast decreased 0.8 percent to 96.4 in May, but remains 3.1 percent above a year ago. In the Midwest the index was 104.5 in May (unchanged from April), and is 2.8 percent lower than May 2016.

Pending home sales in the South declined 1.2 percent to an index of 123.4 in May and are now 1.4 percent below last May. The index in the West subsided 1.3 percent in May to 98.6, and is now 4.5 percent below a year ago.
emphasis added
This was below expectations of a 0.5% increase for this index. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in June and July.

MBA: Mortgage Applications Decrease in Latest Weekly Survey

by Bill McBride on 6/28/2017 07:00:00 AM

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

Mortgage applications decreased 6.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 23, 2017.

... The Refinance Index decreased 9 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 8 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) remained unchanged at 4.13 percent, with points decreasing to 0.32 from 0.34 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity is mostly moving sideways at a low level this year, and will not increase significantly unless rates fall well below 4%.


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

According to the MBA, purchase activity is up 8% year-over-year.

Tuesday, June 27, 2017

Wednesday: Pending Home Sales

by Bill McBride on 6/27/2017 08:27:00 PM

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

• Early: Reis Q2 2017 Mall Survey of rents and vacancy rates.

• At 10:00 AM, Pending Home Sales Index for May. The consensus is for a 0.5% increase in the index.

Richmond Fed: "Manufacturers in the Fifth District Improved in June"

by Bill McBride on 6/27/2017 05:04:00 PM

From the Richmond Fed: Reports from Manufacturers in the Fifth District Improved in June

Reports from Fifth District manufacturers improved in June, according to the latest survey by the Federal Reserve Bank of Richmond. The composite manufacturing index rose from 1 in May to 7 in June, as the indexes for shipments and new orders increased. The employment index was relatively flat. Most firms continued to report steady or higher wages; although the index for wages did fall in June, it remained above 0. Meanwhile, more firms reported a decline in the average workweek than reported an increase.

Looking six months ahead, manufacturing executives were more optimistic in June than in May, although even the May readings were very positive.
emphasis added
This was the last of the regional Fed surveys for June.

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

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

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

Based on these regional surveys, it seems likely the ISM manufacturing index will increase slightly in June compared to May (to be released this coming Monday, July 3rd).  The early consensus is for the ISM index to be unchanged in June.

Real House Prices and Price-to-Rent Ratio in April

by Bill McBride on 6/27/2017 02:03:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.5% year-over-year in April

It has been more than ten years since the bubble peak. In the Case-Shiller release this morning, the seasonally adjusted National Index (SA), was reported as being 2.4% above the previous bubble peak. However, in real terms, the National index (SA) is still about 13.9% below the bubble peak.

The year-over-year increase in prices is mostly moving sideways now just over 5%. In April, the index was up 5.5% YoY.

In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $278,000 today adjusted for inflation (39%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Nominal House Prices

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

In nominal terms, the Case-Shiller National index (SA) is at a new peak, and the Case-Shiller Composite 20 Index (SA) is back to October 2005 levels, and the CoreLogic index (NSA) is back to December 2005.

Real House Prices

Real House PricesThe second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to June 2004 levels, the Composite 20 index is back to March 2004, and the CoreLogic index back to April 2004.

In real terms, house prices are back to early 2004 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.

Price-to-Rent RatioHere 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 November 2003 levels, the Composite 20 index is back to August 2003 levels, and the CoreLogic index is back to September 2003.

In real terms, prices are back to early 2004 levels, and the price-to-rent ratio is back to 2003 - and the price-to-rent ratio maybe moving a little more sideways now.

Reis: Apartment Vacancy Rate increased in Q2 to 4.4%

by Bill McBride on 6/27/2017 11:13:00 AM

Reis reported that the apartment vacancy rate was at 4.4% in Q2 2017, up from 4.3% in Q1, and up from 4.2% in Q2 2016.  This is the highest vacancy rate since Q3 2013 (although the increase has been small).  The vacancy rate peaked at 8.0% at the end of 2009.

From Reis:

Shaking off a sluggish first quarter, the apartment market showed marked improvement in the second quarter as all but two of 79 metros saw effective rents increase or stay flat in the quarter. The average effective rent grew 1.1% in the quarter and 3.0% over the year. The vacancy rate increased from 4.3% to 4.4%

Vacancy increased in 27 Metros, but the increase exceeded 0.2% in only eight metros. The number of new completions was lower than had been expected as was net absorption.

The growth in effective rents suggests that landlords’ offers of free rent were less aggressive as the apartment market continued to benefit from stronger housing prices keeping more potential home buyers in rentals.

Total inventory is expected to increase significantly in 2017; however, construction in the second quarter was lower than expected in a quarter that tends to see the highest activity. New construction of 36,477 units was the lowest quarterly addition in more than two years. With less new supply coming online, landlords were able to curb their concessions.

At 4.4%, the national vacancy rate increased 10 basis points from 4.3% in the first quarter. One year ago, the vacancy rate was 4.2%. Occupancy growth, or net absorption, while low at 27,818 units, fell just shy of new supply pushing the vacancy rate up in the quarter.
emphasis added
Apartment Vacancy Rate Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.

The vacancy rate had been mostly moving sideways for the last few years.  However it appears the vacancy rate has bottomed and is starting to increase.  With more supply coming on line later this year - and less favorable demographics - the vacancy rate will probably continue to increase slowly.

Apartment vacancy data courtesy of Reis.

Case-Shiller: National House Price Index increased 5.5% year-over-year in April

by Bill McBride on 6/27/2017 09:12:00 AM

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

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

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

From S&P: The S&P Corelogic Case-Shiller National Home Price NSA Index Sets Record for Five Consecutive Months

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.5% annual gain in April, down from 5.6% last month. The 10-City Composite annual increase came in at 4.9%, down from 5.2% the previous month. The 20-City Composite posted a 5.7% year-over-year gain, down from 5.9% in March.

Seattle, Portland, and Dallas reported the highest year-over-year gains among the 20 cities. In April, Seattle led the way with a 12.9% year-over-year price increase, followed by Portland with 9.3%, and Dallas with an 8.4% increase. Seven cities reported greater price increases in the year ending April 2017 versus the year ending March 2017.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.9% in April. The 10-City Composite posted a 0.8% increase and the 20-City Composite reported a 0.9% increase in April. After seasonal adjustment, the National Index recorded a 0.2% month-over-month increase. The 10-City Composite posted a 0.2% month-over-month increase. The 20-City Composite posted a 0.3% month-over-month increase. Eighteen of 20 cities reported increases in April before seasonal adjustment; after seasonal adjustment, 13 cities saw prices rise.

“As home prices continue rising faster than inflation, two questions are being asked: why? And, could this be a bubble?” says David M. Blitzer Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Since demand is exceeding supply and financing is available, there is nothing right now to keep prices from going up. The increase in real, or inflation-adjusted, home prices in the last three years shows that demand is rising. At the same time, the supply of homes for sale has barely kept pace with demand and the inventory of new or existing homes for sale shrunk down to only a four- month supply. Adding to price pressures, mortgage rates remain close to 4% and affordability is not a significant issue.

“The question is not if home prices can climb without any limit; they can’t. Rather, will home price gains gently slow or will they crash and take the economy down with them? For the moment, conditions appear favorable for avoiding a crash. Housing starts are trending higher and rising prices may encourage some homeowners to sell. Moreover, mortgage default rates are low and household debt levels are manageable. Total mortgage debt outstanding is $14.4 trillion, about $400 billion below the record set in 2008. Any increase in mortgage interest rates would dampen demand. Household finances should be able to weather a fairly large price drop.”
emphasis added
Case-Shiller House Prices Indices Click on graph for larger image.

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

The Composite 10 index is off 6.6% from the peak, and up 0.2% in April (SA).

The Composite 20 index is off 4.0% from the peak, and up 0.3% (SA) in April.

The National index is 2.4% above the bubble peak (SA), and up 0.2% (SA) in April.  The National index is up 38.4% from the post-bubble low set in December 2011 (SA).

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

The Composite 10 SA is up 4.9% compared to April 2016.  The Composite 20 SA is up 5.6% year-over-year.

The National index SA is up 5.5% year-over-year.

Note: According to the data, prices increased in 15 of 20 cities month-over-month seasonally adjusted.

I'll have more later.

Monday, June 26, 2017

Tuesday: Case-Shiller House Prices

by Bill McBride on 6/26/2017 09:16:00 PM

Tuesday:
• Early, Reis Q2 2017 Apartment Survey of rents and vacancy rates.

• At 9:00 AM ET, S&P/Case-Shiller House Price Index for April. The consensus is for a 5.9% year-over-year increase in the Comp 20 index for April.

• At 10:00 AM, Richmond Fed Survey of Manufacturing Activity for June.

Hotels: Hotel Occupancy down slightly Year-over-Year

by Bill McBride on 6/26/2017 04:11:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 17 June

The U.S. hotel industry reported mostly positive year-over-year results in the three key performance metrics during the week of 11-17 June 2017, according to data from STR.

In comparison with the week of 12-18 June 2016, the industry recorded the following:

Occupancy: -0.3% to 74.3%
• Average daily rate (ADR): +1.7% to US$129.32
• Revenue per available room (RevPAR): +1.4% to US$96.10
emphasis added
The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Hotel Occupancy RateThe red line is for 2017, dashed is 2015 (best year on record), blue is the median, and black is for 2009 (the worst year since the Great Depression for hotels).

Currently the occupancy rate is tracking close to last year, and just behind the record year in 2015.

For hotels, occupancy will increase further during the summer travel season.

Data Source: STR, Courtesy of HotelNewsNow.com

For Fun: Stock Market as Barometer of Policy Success

by Bill McBride on 6/26/2017 02:11:00 PM

There are a number of observers who think the stock market is the key barometer of policy success.  My view is there are many measures of success - and that the economy needs to work well for a majority of the people - not just stock investors.

However, for example, Treasury Secretary Steven Mnuchin was on CNBC on Feb 22, 2017, and was asked if the stock market rally was a vote of confidence in the new administration, he replied: "Absolutely, this is a mark-to-market business, and you see what the market thinks."

And Larry Kudlow wrote in 2007: A Stock Market Vote of Confidence for Bush: "I have long believed that stock markets are the best barometer of the health, wealth and security of a nation. And today's stock market message is an unmistakable vote of confidence for the president."

Note: Kudlow's comments were made a few months before the market started selling off in the Great Recession. For more on Kudlow, see: Larry Kudlow is usually wrong

For fun, here is a graph comparing S&P500 returns (ex-dividends) under Presidents Trump and Obama:

Stock Market Performance Click on graph for larger image.

Blue is for Mr. Obama, Orange is for Mr. Trump.

At this point, the S&P500 is up 7.5% under Mr. Trump compared to up 11.9% under Mr. Obama for the same number of market days.

Freddie Mac: Mortgage Serious Delinquency rate declined in May, Lowest since May 2008

by Bill McBride on 6/26/2017 11:13:00 AM

Freddie Mac reported that the Single-Family serious delinquency rate in May was at 0.87%, down from 0.92% in April.  Freddie's rate is down from 1.11% in May 2016.

Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

This is the lowest serious delinquency rate since May 2008.

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

Although the rate is still declining, the rate of decline has slowed.

Maybe the rate will decline another 0.2 to 0.3 percentage points or so to a cycle bottom, but this is pretty close to normal.

Note: Fannie Mae will report for May soon.

Dallas Fed: "Texas Manufacturing Continues to Expand but at a Slower Pace" in June

by Bill McBride on 6/26/2017 10:39:00 AM

From the Dallas Fed: Texas Manufacturing Continues to Expand but at a Slower Pace

Texas factory activity increased in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell 11 points to 12.3, indicating output grew but at a slower pace than in May.

Other measures of current manufacturing activity also indicated that growth moderated. The new orders and growth rate of orders indexes fell several points each, coming in at 9.6 and 4.7, respectively. The capacity utilization index moved down to 12.3, and the shipments index retreated to 8.5 after surging last month.

Perceptions of broader business conditions improved in June, although the indexes were less positive than in May. The general business activity index edged down to 15.0. The company outlook index posted a 10th consecutive positive reading but fell nine points to 10.8.

Labor market measures indicated continued employment gains and longer workweeks this month. The employment index posted a sixth consecutive positive reading and edged up to 9.6. Nineteen percent of firms noted net hiring, compared with 10 percent noting net layoffs. The hours worked index dropped to 8.9, down seven points from a six-year high last month.
emphasis added
CR note: This suggests solid growth, although at a slower pace than in May. The recent decline in oil prices might impact the Dallas surveys in coming months.

Chicago Fed "Index Points to Slower Economic Growth in May"

by Bill McBride on 6/26/2017 09:11:00 AM

From the Chicago Fed: Chicago Fed National Activity Index Points to Slower Economic Growth in May

Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) moved down to –0.26 in May from +0.57 in April. Three of the four broad categories of indicators that make up the index decreased from April, and three of the four categories made negative contributions to the index in May. The index’s three-month moving average, CFNAI-MA3, declined to +0.04 in May from +0.21 in April.
emphasis added
This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Chicago Fed National Activity Index Click on graph for larger image.

This suggests economic activity was close to the historical trend in May (using the three-month average).

According to the Chicago Fed:
The index is a weighted average of 85 indicators of growth in national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.
...
A zero value for the monthly index has been associated with the national economy expanding at its historical trend (average) rate of growth; negative values with below-average growth (in standard deviation units); and positive values with above-average growth.

Sunday, June 25, 2017

Sunday Night Futures

by Bill McBride on 6/25/2017 07:56:00 PM

Weekend:
Schedule for Week of June 25, 2017

Monday:
• At 8:30 AM ET, Durable Goods Orders for May from the Census Bureau. The consensus is for a 0.4% decrease in durable goods orders.

• Also at 8:30 AM, Chicago Fed National Activity Index for May. This is a composite index of other data.

• At 10:30 AM, Dallas Fed Survey of Manufacturing Activity for June.

From CNBC: Pre-Market Data and Bloomberg futures: S&P futures are down 3 and DOW futures are down 10 (fair value).

Oil prices were down over the last week with WTI futures at $43.21 per barrel and Brent at $45.54 per barrel.  A year ago, WTI was at $47, and Brent was at $47 - so oil prices are down about 5% to 10% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.25 per gallon - a year ago prices were at $2.32 per gallon - so gasoline prices are down 7 cents year-over-year.

Goldman on the Next Recession

by Bill McBride on 6/25/2017 12:13:00 PM

A few brief excerpts from a note by Goldman Sachs economists: The Next Recession: Lessons from History

With the current expansion already the third longest in US history, investors have begun to look ahead to the next recession. ... we find that many pre-WW2 recessions originated in the financial sector, many post-WW2 recessions were caused by oil shocks and monetary policy tightening, and sentiment-driven swings in borrowing and investment led to recessions in both eras. ...

Some common contributors to past recessions look less worrisome today. ... the dominant cause of postwar US recessions—rapid rate hikes in response to high inflation, often boosted by oil shocks—is less threatening today due to the anchoring of inflation expectations and the rise of shale.
...
[Our model] now estimates a 1/4 chance of recession over the next two years, somewhat below the unconditional probability over two years of 1/3 since 1980.
CR note: Some day there will be another recession, but I don't see signs of a recession in the next year or more.

Saturday, June 24, 2017

Schedule for Week of June 25, 2017

by Bill McBride on 6/24/2017 08:11:00 AM

The key economic reports this week are Personal Income and Outlays for May, Case-Shiller house prices, and the third estimate of Q1 GDP.

----- Monday, June 26th -----

8:30 AM: Durable Goods Orders for May from the Census Bureau. The consensus is for a 0.4% decrease in durable goods orders.

8:30 AM: Chicago Fed National Activity Index for May. This is a composite index of other data.

10:30 AM: Dallas Fed Survey of Manufacturing Activity for June.

----- Tuesday, June 27th -----

Early: Reis Q2 2017 Apartment Survey of rents and vacancy rates.

Case-Shiller House Prices Indices9:00 AM ET: S&P/Case-Shiller House Price Index for April.

This graph shows the nominal seasonally adjusted National Index, Composite 10 and Composite 20 indexes through the March 2017 report (the Composite 20 was started in January 2000).

The consensus is for a 5.9% year-over-year increase in the Comp 20 index for April.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for June.

----- Wednesday, June 28th -----

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

Early: Reis Q2 2017 Mall Survey of rents and vacancy rates.

10:00 AM: Pending Home Sales Index for May. The consensus is for a 0.5% increase in the index.

----- Thursday, June 29th -----

8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 239 thousand initial claims, down from 241 thousand the previous week.

8:30 AM: Gross Domestic Product, 1st quarter 2017 (Third estimate). The consensus is that real GDP increased 1.2% annualized in Q1, unchanged from the second estimate of 1.2%.

Early: Reis Q2 2017 Office Survey of rents and vacancy rates.

----- Friday, June 30th -----

8:30 AM: Personal Income and Outlays for May. The consensus is for a 0.3% increase in personal income, and for a 0.1% increase in personal spending. And for the Core PCE price index to increase 0.1%.

9:45 AM: Chicago Purchasing Managers Index for June. The consensus is for a reading of 58.2, down from 59.4 in May.

10:00 AM: University of Michigan's Consumer sentiment index (final for June). The consensus is for a reading of 94.5, from the preliminary reading 94.5.

Friday, June 23, 2017

Oil Rigs: "Not dead yet!"

by Bill McBride on 6/23/2017 03:55:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on June 23, 2017:

• Total US oil rigs were up 11 to 756

• Horizontal oil rigs were up a whopping 12 to 648

• Goodness knows the underlying dynamics, but apparently the rig operators have not received the oil price crash memo.
Oil Rig CountClick on graph for larger image.

CR note: This graph shows the US horizontal rig count by basin.

Graph and comments Courtesy of Steven Kopits of Princeton Energy Advisors LLC.

A few Comments on May New Home Sales

by Bill McBride on 6/23/2017 11:59:00 AM

New home sales for May were reported at 610,000 on a seasonally adjusted annual rate basis (SAAR). This was above the consensus forecast, and the three previous months combined were revised up. Overall this was a solid report.

Sales were up 8.9% year-over-year in May.

Earlier: New Home Sales increase to 610,000 Annual Rate in May.

New Home Sales 2015 2016Click on graph for larger image.

This graph shows new home sales for 2016 and 2017 by month (Seasonally Adjusted Annual Rate).  Sales were up 8.9% year-over-year in May.

For the first five months of 2017, new home sales are up 12.2% compared to the same period in 2016.

This was a strong year-over-year increase through May, however sales were weak in Q1 last year, so this was a somewhat easy comparison.

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

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through May 2017. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales.

However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.

Distressing GapAnother way to look at this is a ratio of existing to new home sales.

This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales. (Note: This ratio was fairly stable back to the early '70s, but I only have annual data for the earlier years).

In general the ratio has been trending down since the housing bust, and this ratio will probably continue to trend down over the next several years.

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 increase to 610,000 Annual Rate in May

by Bill McBride on 6/23/2017 10:15:00 AM

The Census Bureau reports New Home Sales in May were at a seasonally adjusted annual rate (SAAR) of 610 thousand.

The previous three months combined were revised up.

"Sales of new single-family houses in May 2017 were at a seasonally adjusted annual rate of 610,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.9 percent above the revised April rate of 593,000 and is 8.9 percent above the May 2016 estimate of 560,000."
emphasis added
New Home SalesClick on graph for larger image.

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

Even with the increase in sales over the last several years, new home sales are still somewhat low historically.

The second graph shows New Home Months of Supply.

New Home Sales, Months of SupplyThe months of supply was unchanged in May at 5.3 months.

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

This is in the normal range (less than 6 months supply is normal).
"The seasonally-adjusted estimate of new houses for sale at the end of May was 268,000. This represents a supply of 5.3 months at the current sales rate."
New Home Sales, InventoryOn 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.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

New Home Sales, NSAThe last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In May 2017 (red column), 58 thousand new homes were sold (NSA). Last year, 53 thousand homes were sold in May.

The all time high for May was 120 thousand in 2005, and the all time low for May was 26 thousand in 2010.

This was above expectations of 590,000 sales SAAR, and the previous months were revised up.   A solid report.  I'll have more later today.

Thursday, June 22, 2017

Friday: New Home Sales

by Bill McBride on 6/22/2017 06:50:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Sideways to Slightly Lower

Mortgage rates have been so little-changed in recent days that yesterday's coverage wouldn't need to be changed in order to apply perfectly today.
...
The absence of change continues to be a good thing given that rates remain very close to their lowest levels in more than 8 months.  Only a handful of recent days have been any better.  4.0% is the most prevalently-quoted conventional 30yr fixed rate on top tier scenarios, though a few of the aggressive lenders remain at 3.875%.  
Friday:
• At 8:30 AM ET: New Home Sales for May from the Census Bureau. The consensus is for an increase in sales to 590 thousand Seasonally Adjusted Annual Rate (SAAR) in May from 569 thousand in April.

U.S. Demographics: The Millennials Take Over

by Bill McBride on 6/22/2017 02:29:00 PM

From the Census Bureau The Nation’s Older Population Is Still Growing, Census Bureau Reports

New detailed estimates show the nation’s median age — the age where half of the population is younger and the other half older — rose from 35.3 years on April 1, 2000, to 37.9 years on July 1, 2016.

“The baby-boom generation is largely responsible for this trend,” said Peter Borsella, a demographer in the Population Division. “Baby boomers began turning 65 in 2011 and will continue to do so for many years to come.”

Residents age 65 and over grew from 35.0 million in 2000, to 49.2 million in 2016, accounting for 12.4 percent and 15.2 percent of the total population, respectively.
U.S. Population by Age Click on graph for larger image.

This graph uses the data in the July 1, 2016 estimate released today.

Using the Census data, here is a table showing the ten most common ages in 2010 and 2016.

Note the younger baby boom generation dominated in 2010.  By 2016 the millennials have taken over.  The six largest groups, by age, are in their 20s - and eight of the top ten are in their 20s. 

My view is this is positive for both housing and the economy.

Population: Most Common Ages by Year
  20102016
15025
24926
32024
41923
54727
64622
74855
85128
91821
105255

Kansas City Fed: Regional Manufacturing Activity "Expanded Further" in June

by Bill McBride on 6/22/2017 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Expanded Further

The Federal Reserve Bank of Kansas City released the June Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity expanded further with strong expectations for future activity.

“Firms reported faster growth in June than earlier in the second quarter,” said Wilkerson.  “The share of factories planning to add workers over the next six months also rose solidly.”
...
The month-over-month composite index was 11 in June, up from 8 in May and 7 in April. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. ...
emphasis added
The Kansas City region was hit hard by the sharp decline in oil prices, but activity has been expanding as oil prices increased. It is too early to tell if the recent decline in oil prices will impact the Kansas City region again.

Black Knight: Mortgage Delinquencies Decreased in May, Foreclosures at 10-Year Lows

by Bill McBride on 6/22/2017 09:30:00 AM

From Black Knight: Prepayments (historically a good indicator of refinance activity) jumped 23 percent month-over-month, reaching their highest point so far in 2017

• Prepayments (historically a good indicator of refinance activity) jumped 23 percent month-over-month, reaching their highest point so far in 2017

• Delinquencies reversed course after calendar driven increase in April, falling 7.13 percent month-over-month

• April’s delinquency rate increase was primarily calendar-driven (due to both the month ending on a Sunday and March being the typical calendar-year low) and largely isolated to early-stage delinquencies

• Inventory of loans either seriously delinquent (90 or more days past due) or in active foreclosure continues to improve, with both hitting 10-year lows in May
According to Black Knight's First Look report for May, the percent of loans delinquent decreased 7.1% in May compared to April, and declined 10.8% year-over-year.

The percent of loans in the foreclosure process declined 3.0% in May and were down 26.9% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 3.79% in May, down from 4.08% in April.

The percent of loans in the foreclosure process declined in May to 0.83%.

The number of delinquent properties, but not in foreclosure, is down 226,000 properties year-over-year, and the number of properties in the foreclosure process is down 153,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  May
2017
Apr
2017
May
2016
May
2015
Delinquent3.79%4.08%4.25%4.91%
In Foreclosure0.83%0.85%1.13%1.59%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:1,927,0002,072,0002,153,0002,478,000
Number of properties in foreclosure pre-sale inventory:421,000433,000574,000803,000
Total Properties2,348,0002,505,0002,727,0003,280,000

Weekly Initial Unemployment Claims increase to 241,000

by Bill McBride on 6/22/2017 08:34:00 AM

The DOL reported:

In the week ending June 17, the advance figure for seasonally adjusted initial claims was 241,000, an increase of 3,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 237,000 to 238,000. The 4-week moving average was 244,750, an increase of 1,500 from the previous week's revised average. The previous week's average was revised up by 250 from 243,000 to 243,250.
emphasis added
The previous week was revised up.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 244,750.

This was close to the consensus forecast.

The low level of claims suggests relatively few layoffs.

Wednesday, June 21, 2017

Thursday: Unemployment Claims

by Bill McBride on 6/21/2017 08:58:00 PM

Thursday:
• At 8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 240 thousand initial claims, up from 237 thousand the previous week.

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

• At 11:00 AM, the Kansas City Fed manufacturing survey for June.

Philly Fed: State Coincident Indexes increased in 36 states in May

by Bill McBride on 6/21/2017 03:55:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for May 2017. Over the past three months, the indexes increased in 44 states, decreased in five, and remained stable in one, for a three-month diffusion index of 78. In the past month, the indexes increased in 36 states, decreased in seven, and remained stable in seven, for a one-month diffusion index of 58.
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 May, 43 states had increasing activity (including minor increases).

The downturn in 2015 and 2016, in the number of states increasing, was mostly related to the decline in oil prices.   The reason for the recent decrease in the number of states with increasing activity is unclear - and might be revised away.

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 almost all green now.

Source: Philly Fed. Note: For complaints about red / green issues, please contact the Philly Fed.

A Few Comments on May Existing Home Sales

by Bill McBride on 6/21/2017 12:42:00 PM

Earlier: NAR: "Existing-Home Sales Rise 1.1 Percent in May"

Two key points:

1) As usual, housing economist Tom Lawler's forecast was closer to the NAR report than the consensus.  The NAR reported sales of  5.62 million SAAR, Lawler projected 5.65 million SAAR, and the consensus was 5.55 million SAAR.  See: Lawler: Early Read on Existing Home Sales in May

"I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.65 million in May, up 1.4% from April’s preliminary pace and up 3.3% from last May’s seasonally adjusted pace."
2) Inventory is still very low and falling year-over-year (down 8.4% year-over-year in May).

I started the year expecting inventory would be increasing year-over-year by the end of 2017. That now seems unlikely, but still possible.

More inventory would probably mean smaller price increases, and less inventory somewhat larger price increases.

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

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in May (red column) were above May2016. (NSA) - and the highest for May since 2006.

Note that sales NSA are now in the seasonally strong period (March through September).

NAR: "Existing-Home Sales Rise 1.1 Percent in May"

by Bill McBride on 6/21/2017 10:11:00 AM

From the NAR: Existing-Home Sales Rise 1.1 Percent in May; Median Sales Price Ascends to New High

Existing-home sales rebounded in May following a notable decline in April, and low inventory levels helped propel the median sales price to a new high while pushing down the median days a home is on the market to a new low, according to the National Association of Realtors®. All major regions except for the Midwest saw an increase in sales last month.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, climbed 1.1 percent to a seasonally adjusted annual rate of 5.62 million in May from a downwardly revised 5.56 million in April. Last month's sales pace is 2.7 percent above a year ago and is the third highest over the past year.  
...
Total housing inventory at the end of May rose 2.1 percent to 1.96 million existing homes available for sale, but is still 8.4 percent lower than a year ago (2.14 million) and has fallen year-over-year for 24 consecutive months. Unsold inventory is at a 4.2-month supply at the current sales pace, which is down from 4.7 months a year ago.
emphasis added
Existing Home SalesClick on graph for larger image.

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

Sales in May (5.63 million SAAR) were 1.1% higher than last month, and were 2.7% above the May 2016 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory increased to 1.96 million in May from 1.92 million in April.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

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

Year-over-year Inventory Inventory decreased 8.4% year-over-year in May compared to May 2016.  

Months of supply was at 4.2 months in May.

This was above the consensus expectations. For existing home sales, a key number is inventory - and inventory is still low. I'll have more later ...

AIA: Architecture Billings Index positive in May

by Bill McBride on 6/21/2017 09:15:00 AM

Note: This index is a leading indicator primarily for new Commercial Real Estate (CRE) investment.

From the AIA: Design billings maintain solid footing, with strong momentum reflected in both project inquiries and design contracts

Design services at architecture firms continue to project a healthy disposition on the construction industry as the Architecture Billings Index (ABI) recorded the fourth consecutive month of growth. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lead time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the May ABI score was 53.0, up from a score of 50.9 in the previous month. This score reflects an increase in design services (any score above 50 indicates an increase in billings). The new projects inquiry index was 62.4, up from a reading of 60.2 the previous month, while the new design contracts index increased from 53.2 to 54.8.

“The fact that the data surrounding both new project inquiries and design contracts have remained positive every month this year, while reaching their highest scores for the year, is a good indication that both the architecture and construction sectors will remain healthy for the foreseeable future,” AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “This growth hasn’t been an overnight escalation, but rather a steady, stable increase.”
...
• Regional averages: South (56.1), West (52.3), Midwest (50.4), Northeast (46.5)

• Sector index breakdown: mixed practice (55.8), multi-family residential (51.3), commercial / industrial (51.2), institutional (51.2)
emphasis added
AIA Architecture Billing Index Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 53.0 in May, up from 50.9 the previous month. Anything above 50 indicates expansion in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index was positive in 9 of the last 12 months, suggesting a further increase in CRE investment in 2017 and early 2018.

MBA: Mortgage Applications Increase in Latest Weekly Survey

by Bill McBride on 6/21/2017 07:00:00 AM

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

Mortgage applications increased 0.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 16, 2017.

... The Refinance Index increased 2 percent from the previous week to its highest level since November 2016. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 2 percent compared with the previous week and was 9 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) decreased to 4.13 percent from 4.14 percent, with points increasing to 0.35 from 0.34 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance Index Click on graph for larger image.


The first graph shows the refinance index since 1990.

Refinance activity increased recently as rates declined, but will not increase significantly unless rates fall well below 4%.


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

According to the MBA, purchase activity is up 9% year-over-year.

Tuesday, June 20, 2017

Wednesday: Existing Home Sales

by Bill McBride on 6/20/2017 08:20:00 PM

From Matthew Graham at Mortgage News Daily: Rates Fall Slightly to Remain Near 8-Month Lows

Mortgage rates were steady to slightly lower today, with underlying bond markets essentially erasing the damage seen yesterday.  This was neither here nor there for the mortgage world as most lenders didn't adjust rates much higher yesterday (despite bond weakness).  Thus, they didn't have much to do today when bonds strengthened.  In general "bond market strength" = lower rates and vice versa.
...
The absence of change continues to be a good thing given that rates remain very close to their lowest levels in more than 8 months.  Only a handful of recent days have been any better.  4.0% is the most prevalently-quoted conventional 30yr fixed rate on top tier scenarios, though a few of the aggressive lenders remain at 3.875%.
Wednesday:
• At 7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 10:00 AM, Existing Home Sales for May from the National Association of Realtors (NAR). The consensus is for 5.55 million SAAR, down from 5.57 million in April. Housing economist Tom Lawler expects the NAR to report sales of 5.65 million SAAR in May.

• During the day: The AIA's Architecture Billings Index for May (a leading indicator for commercial real estate).

Phoenix Real Estate in May: Sales up 9%, Inventory down 9% YoY

by Bill McBride on 6/20/2017 05:29:00 PM

This is a key housing market to follow since Phoenix saw a large bubble and bust, followed by strong investor buying.

The Arizona Regional Multiple Listing Service (ARMLS) reports (table below):

1) Overall sales in May were up 9.3% year-over-year.

2) Active inventory is now down 9.5% year-over-year. 

More inventory (a theme in most of 2014) - and less investor buying - suggested price increases would slow sharply in 2014.  And prices increases did slow in 2014, only increasing 2.4% according to Case-Shiller.

In 2015, with falling inventory, prices increased a little faster.  Prices were up 6.3% in 2015 according to Case-Shiller.

With flat inventory in 2016, prices were up 4.8%.

This is the seventh consecutive month with a YoY decrease in inventory, and prices are up 1.7% through March (7.1% annual rate).

May Residential Sales and Inventory, Greater Phoenix Area, ARMLS
SalesYoY
Change
Sales
Cash
Sales
Percent
Cash
InventoryYoY
Change
Inventory
May-085,6371---1,06218.8%54,1611---
May-099,28464.7%3,59238.7%39,902-26.3%
May-109,067-2.3%3,34136.8%41,3263.6%
May-119,8118.2%4,52346.1%31,661-23.4%
May-128,44513.5%3,90746.3%20,162-36.3%
May-139,44011.8%3,66938.9%19,734-2.1%
May-147,442-21.2%2,19329.5%29,09147.4%
May-158,29311.4%1,98824.0%24,616-15.4%
May-168,8206.4%1,93121.9%25,9805.5%
May-179,6419.3%NANA23,520-9.5%
1 May 2008 does not include manufactured homes, ~100 more

Chemical Activity Barometer "flat" in June

by Bill McBride on 6/20/2017 11:52:00 AM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Remains Steady

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), was flat in June following a 0.2 percent gain in May, and a 0.3 percent gain in April. This marks a slowing from the average 0.5 percent first quarter monthly gain.  Compared to a year earlier, the CAB is up 4.3 percent year-over-year, a modest yet continued slowing. All data is measured on a three-month moving average (3MMA).
...
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added
Chemical Activity Barometer Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

CAB increased solidly in early 2017 suggesting an increase in Industrial Production, however, the year-over-year increase in the CAB has slowed recently.