Monday, July 31, 2017

Tuesday: Personal Income, ISM Mfg, Construction Spending, Vehicle Sales

by Bill McBride on 7/31/2017 09:08:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Modestly Lower Despite Flat Markets

Mortgage rates moved modestly lower today, despite an absence of improvement in underlying bond markets. ... The coming days bring increasingly important economic reports.  These have the power to create more market movement than we saw at the end of last week and thus, a bigger change in mortgage rates, for better or worse.  For now, things have been holding exceptionally steady with an average top tier 30yr fixed rate of 4.0%.
Tuesday:
• At 8:30 AM ET, Personal Income and Outlays for June. The consensus is for a 0.4% 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 10:00 AM, ISM Manufacturing Index for July. The consensus is for the ISM to be at 56.4, down from 57.8 in June. The ISM manufacturing index indicated expansion at 57.8% in June. The employment index was at 57.2%, and the new orders index was at 63.5%.

• Also at 10:00 AM, Construction Spending for June. The consensus is for a 0.5% increase in construction spending.

• All day, Light vehicle sales for July. The consensus is for light vehicle sales to be 16.8 million SAAR in July, up from 16.5 million in  June (Seasonally Adjusted Annual Rate).

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

by Bill McBride on 7/31/2017 04:58:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined to 1.01% in June, from 1.04% in May. The serious delinquency rate is down from 1.32% in June 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 somewhat under 1%. 

The Fannie Mae serious delinquency rate has fallen 0.31 percentage points over the last year, and at that rate of improvement, the serious delinquency rate should be below 1% next month.

Note: Freddie Mac reported earlier.

Earlier: Chicago PMI decreased in July

by Bill McBride on 7/31/2017 01:26:00 PM

Earlier from the Chicago PMI: July Chicago Business Barometer at 58.9 vs 65.7 in June

The MNI Chicago Business Barometer fell to 58.9 in July from 65.7 in June, the lowest level in three months.
...
“MNI’s July Chicago Business Barometer should be viewed in the context of the underlying, upward trend in business sentiment witnessed since early 2016. Key indicators, despite reversing their June reading, remain above their respective averages set over the last twelve months, and point towards robust confidence among U.S firms,” said Jamie Satchi, Economist at MNI Indicators. 
emphasis added
This was below the consensus forecast of 62.0, but still a solid reading.

Dallas Fed: "Texas Manufacturing Activity Strengthens" in July

by Bill McBride on 7/31/2017 10:41:00 AM

From the Dallas Fed: Texas Manufacturing Activity Strengthens, Outlooks Improve

Texas factory activity increased again in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose 11 points to 22.8, indicating output grew at a faster pace than in June.

Other measures of current manufacturing activity also indicated a pickup in growth. The new orders and the growth rate of orders indexes rose several points each, coming in at 16.1 and 12.2, respectively. The capacity utilization index moved up to 18.1 and the shipments index increased three points to 11.6.

Perceptions of broader business conditions improved again in July, with a sharp pickup in outlooks. The general business activity index edged up to 16.8, marking a 10th consecutive positive reading. The company outlook index jumped 15 points to 25.9, reaching its highest level since 2010.

Labor market measures indicated slightly stronger employment gains and longer workweeks this month. The employment index has been positive all year and edged up to 11.2, its highest reading since the end of 2015. Twenty-one percent of firms noted net hiring, compared with 9 percent noting net layoffs. The hours worked index ticked up to 9.8.
emphasis added
This was the last of the regional Fed surveys for July.

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

Based on these regional surveys, it seems likely the ISM manufacturing index will decrease in July compared to June (to be released tomorrow, August 1st). The consensus is for the ISM index to decrease to 56.4 in July from 57.8 in June.

NAR: Pending Home Sales Index increased 1.5% in June, up 0.5% year-over-year

by Bill McBride on 7/31/2017 10:03:00 AM

From the NAR: Pending Home Sales Recover in June, Grow 1.5 Percent

After declining for three straight months, pending home sales reversed course in June as all major regions, except for the Midwest, saw an increase in contract activity, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, climbed 1.5 percent to 110.2 in June from an upwardly revised 108.6 in May. At 0.5 percent, the index last month increased annually for the first time since March.
...
The PHSI in the Northeast inched forward 0.7 percent to 98.0 in June, and is now 2.9 percent above a year ago. In the Midwest the index decreased 0.5 percent to 104.0 in June, and is now 3.4 percent lower than June 2016.

Pending home sales in the South rose 2.1 percent to an index of 126.0 in June and are now 2.6 percent above last June. The index in the West grew 2.9 percent in June to 101.5, but is still 1.1 percent below a year ago.
emphasis added
This was above expectations of a 0.9% 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 July and August.

Sunday, July 30, 2017

Sunday Night Futures

by Bill McBride on 7/30/2017 08:04:00 PM

Weekend:
Schedule for Week of July 30, 2017

Monday:
• At 9:45 AM ET, Chicago Purchasing Managers Index for July. The consensus is for a reading of 62.0, down from 65.7 in June.

• At 10:00 AM, Pending Home Sales Index for May. The consensus is for a 0.9% increase in the index.

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

From CNBC: Pre-Market Data and Bloomberg futures: S&P futures are down 1, and DOW futures are down 11 (fair value).

Oil prices were up over the last week with WTI futures at $49.95 per barrel and Brent at $52.76 per barrel.  A year ago, WTI was at $42, and Brent was at $41 - so oil prices are up about 20% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.31 per gallon - a year ago prices were at $2.14 per gallon - so gasoline prices are up 17 cents per gallon year-over-year.

July 2017: Unofficial Problem Bank list declines to 134 Institutions

by Bill McBride on 7/30/2017 09:01:00 AM

Note: Surferdude808 compiles an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for July 2017.

Here are the monthly changes and a few comments from surferdude808:

Update on the Unofficial Problem Bank List for July 2017.  It was a quiet month for changes to the list as only three banks were removed that lowered the total count from 137 to 134 institutions.  Aggregate assets fell by $2.4 billion to $32.8 billion.  A year ago, the list held 196 institutions with assets of $58.9 billion.  Actions were terminated against Gibraltar Private Bank & Trust Co., Coral Gables, FL ($1.6 billion); Dieterich Bank, N.A., Dieterich, IL ($617 million); and Washita State Bank, Burns Flat, OK ($114 million).

Saturday, July 29, 2017

Schedule for Week of July 30, 2017

by Bill McBride on 7/29/2017 08:21:00 AM

The key report this week is the July employment report on Friday.

Other key indicators include the July ISM manufacturing and non-manufacturing indexes, July auto sales, and the June Trade Deficit.

----- Monday, July 31st -----

9:45 AM: Chicago Purchasing Managers Index for July. The consensus is for a reading of 62.0, down from 65.7 in June.

10:00 AM: Pending Home Sales Index for May. The consensus is for a 0.9% increase in the index.

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

----- Tuesday, Aug 1st -----

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

ISM PMI10:00 AM: ISM Manufacturing Index for July. The consensus is for the ISM to be at 56.4, down from 57.8 in June.

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

The ISM manufacturing index indicated expansion at 57.8% in June. The employment index was at 57.2%, and the new orders index was at 63.5%.

10:00 AM: Construction Spending for June. The consensus is for a 0.5% increase in construction spending.

Vehicle SalesAll day: Light vehicle sales for July. The consensus is for light vehicle sales to be 16.8 million SAAR in July, up from 16.5 million in  June (Seasonally Adjusted Annual Rate).

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

----- Wednesday, Aug 2nd -----

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

8:15 AM: The ADP Employment Report for July. This report is for private payrolls only (no government). The consensus is for 175,000 payroll jobs added in July, up from 158,000 added in June.

----- Thursday, Aug 3rd -----

8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 244 thousand initial claims, unchanged from 244 thousand the previous week.

10:00 AM: the ISM non-Manufacturing Index for July. The consensus is for index to decrease to 56.9 from 57.4 in June.

----- Friday, Aug 4th -----

8:30 AM: Employment Report for July. The consensus is for an increase of 180,000 non-farm payroll jobs added in July, down from the 222,000 non-farm payroll jobs added in June.

Year-over-year change employmentThe consensus is for the unemployment rate to decline to 4.3%.

This graph shows the year-over-year change in total non-farm employment since 1968.

In June, the year-over-year change was 2.24 million jobs.

A key will be the change in wages.

U.S. Trade Deficit8:30 AM: Trade Balance report for June from the Census Bureau.

This graph shows the U.S. trade deficit, with and without petroleum, through May. The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

The consensus is for the U.S. trade deficit to be at $44.5 billion in June from $46.5 billion in May.

Friday, July 28, 2017

Oil Rigs "Back in action"

by Bill McBride on 7/28/2017 05:10:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on July 28, 2017:

• Total US oil rigs were up 2 to 766

• Horizontal oil rigs were up 5 to 658
...
• With oil prices now over $49, operators are both above breakeven and in a position to hedge future production.  Expect a return to rig additions at these prices.
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.

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

by Bill McBride on 7/28/2017 02:09:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in June was at 0.85%, down from 0.87% in May.  Freddie's rate is down from 1.08% in June 2016.

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

This is the lowest serious delinquency rate since April 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 June soon.

Q2 GDP: Investment

by Bill McBride on 7/28/2017 11:12:00 AM

First, the BEA released revisions of GDP data from 2014 through Q1 2017.  In general, GDP was revised up slightly, although residential investment was revised down a little.  Not a significant change.

The first graph below shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

In the graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Investment ContributionsClick on graph for larger image.

Residential investment (RI) decreased at a 6.8% annual rate in Q1.  Equipment investment increased at a 8.2% annual rate, and investment in non-residential structures increased at a 4.9% annual rate.

On a 3 quarter trailing average basis, RI (red), equipment (green), and nonresidential structures (blue) are all positive.

I'll post more on the components of non-residential investment once the supplemental data is released.

I expect investment to be solid going forward, and for the economy to continue to grow.
Residential Investment
The second graph shows residential investment as a percent of GDP.

Residential Investment as a percent of GDP decreased in Q2, but has generally been increasing.  RI as a percent of GDP is only just above the bottom of the previous recessions - and I expect RI to continue to increase for the next few years.

I'll break down Residential Investment into components after the GDP details are released.

Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

non-Residential InvestmentThe third graph shows non-residential investment in structures, equipment and "intellectual property products".  Investment in equipment - as a percent of GDP - picked up.  Investment in nonresidential structures - as a percent of GDP - had been moving down due to less investment in energy and power, and is now picking up again.

Still no worries.

BEA: Real GDP increased at 2.6% Annualized Rate in Q2

by Bill McBride on 7/28/2017 08:35:00 AM

From the BEA: Gross Domestic Product: Second Quarter 2017 (Advance Estimate)

Real gross domestic product increased at an annual rate of 2.6 percent in the second quarter of 2017, according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.2 percent (revised).
...
The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, and federal government spending that were partly offset by negative contributions from private residential fixed investment, private inventory investment, and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The acceleration in real GDP growth in the second quarter reflected a smaller decrease in private inventory investment, an acceleration in PCE, and an upturn in federal government spending. These movements were partly offset by a downturn in residential fixed investment and decelerations in exports and in nonresidential fixed investment.
emphasis added
The advance Q2 GDP report, with 2.6% annualized growth, was at expectations.

Personal consumption expenditures (PCE) increased at 2.8% annualized rate in Q2, up from 1.9% in Q1.   Residential investment (RI) decreased at a 6.8% pace. Equipment investment increased at a 8.2% annualized rate, and investment in non-residential structures increased at a 5.2% pace.

I'll have more later ...

Thursday, July 27, 2017

Friday: GDP

by Bill McBride on 7/27/2017 07:04:00 PM

From Merrill Lynch:

On balance, [inventory] data added 0.3pp to 2Q GDP tracking, bringing us up to 2.4% heading into tomorrow's advance release.
From the Altanta Fed: GDPNow
The final GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2017 is 2.8 percent on July 27, up from 2.5 percent on July 19. The forecast of the contribution of inventory investment to second-quarter growth increased from 0.54 percentage points to 0.82 percentage points after this morning's advance reports on durable manufacturing and wholesale and retail inventories from the U.S. Census Bureau.
Friday:
• At 8:30 AM ET, Gross Domestic Product, 2nd quarter 2017 (Advance estimate). The consensus is that real GDP increased 2.6% annualized in Q2, up from 1.4% in Q1.

• At 10:00 AM, University of Michigan's Consumer sentiment index (final for July). The consensus is for a reading of 93.1, unchanged from the preliminary reading 93.1.

Vehicle Sales Forecast: Fifth consecutive month below 17 million SAAR

by Bill McBride on 7/27/2017 01:45:00 PM

The automakers will report July vehicle sales on Tuesday, August 1st.

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

From WardsAuto: Forecast: July U.S. LV Sales Fall Behind Year-Ago

A WardsAuto forecast calls for U.S. light-vehicle sales to reach a 16.9 million-unit seasonally adjusted annual rate in July, following June’s 16.4 million SAAR and resulting in a 5-month streak of sub-17 million figures. July’s SAAR would be significantly lower than the 17.8 million recorded in same-month 2016.
...
The industry continues to deal with declining sales and rising inventory ... U.S. dealers entered July with ... 73 days’ supply, while a total in the low 60s is considered healthy for this time of year.
emphasis added
Overall sales are down about 3% from the record level in 2016.

Kansas City Fed: Regional Manufacturing Activity "Expanded Moderately" in July

by Bill McBride on 7/27/2017 11:00:00 AM

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

The Federal Reserve Bank of Kansas City released the July 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 moderately with solid expectations for future activity.

“We’ve now seen four months of steady gains following more rapid growth in factory activity earlier this year,” said Wilkerson.  “Firms overall seem confident that moderate growth will continue.”
...
The month-over-month composite index was 10 in July, down slightly from 11 in June but up from 8 in May. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.  Factory activity increased moderately at non-durable goods plants, particularly for chemicals and plastics, while durable activity moderated somewhat.  Month-over-month indexes were mixed.  The production index tumbled from 23 to 4, and the shipments index fell into negative territory for the first time since August 2016.  Conversely, the employment index remained solid, while the new orders index rose modestly, and the order backlog index also increased but remained negative.
emphasis added
The Kansas City region was hit hard by the sharp decline in oil prices, but activity started expanding last year when oil prices increased. Now growth is moderate with oil prices mostly moving sideways.

HVS: Q2 2017 Homeownership and Vacancy Rates

by Bill McBride on 7/27/2017 10:12:00 AM

The Census Bureau released the Residential Vacancies and Homeownership report for Q1 2017.

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

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

Homeownership Rate Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate increased to 63.7% in Q2, from 63.6% in Q1.

I'd put more weight on the decennial Census numbers - and given changing demographics, the homeownership rate is probably close to a bottom.

Homeowner Vacancy RateThe HVS homeowner vacancy declined to 1.5% in Q2. 

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

Rental Vacancy RateThe rental vacancy rate increased to 7.3% in Q2.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey.

Overall this suggests that vacancies have declined significantly, and my guess is the homeownership rate is probably close to the bottom - and that the rental vacancy rate has bottomed.

Weekly Initial Unemployment Claims increase to 244,000

by Bill McBride on 7/27/2017 08:33:00 AM

The DOL reported:

In the week ending July 22, the advance figure for seasonally adjusted initial claims was 244,000, an increase of 10,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 233,000 to 234,000. The 4-week moving average was 244,000, unchanged from the previous week's revised average. The previous week's average was revised up by 250 from 243,750 to 244,000.
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 was unchanged at 244,000.

This was higher than the consensus forecast.

The low level of claims suggests relatively few layoffs.

Wednesday, July 26, 2017

Thursday: Unemployment Claims, Durable Goods, Q2 Housing Vacancies and Homeownership

by Bill McBride on 7/26/2017 08:25:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Steady to Slightly Lower After Fed

Mortgage rates were steady to slightly lower today, despite fairly substantial movement in underlying bond markets. [30YR FIXED - 4.00%] ... As for today's market motivation, the lion's share of the movement happened after the Fed Announcement.
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 233 thousand the previous week.

• Also at 8:30 AM, Durable Goods Orders for June from the Census Bureau. The consensus is for a 3.2% increase in durable goods orders.

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

• At 10:00 AM, the Q2 Housing Vacancies and Homeownership from the Census Bureau.

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

Zillow Forecast: "June Case-Shiller Forecast: Rare Monthly Declines Expected"

by Bill McBride on 7/26/2017 04:41:00 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: June Case-Shiller Forecast: Rare Monthly Declines Expected

Both the 10- and 20-city S&P Case-Shiller indices are expected to fall in June from May on a seasonally adjusted basis, declines that would mark just the third and second months, respectively, in the past five years in which the seasonally adjusted indices have fallen month-over-month.

All three primary Case-Shiller indices grew at a slower or flat annual pace in May compared to the previous month, and Zillow’s Case-Shiller forecast predicts that slowdown continued into June. The 10- and 20-city indices are each expected to fall 0.1 percent from May (seasonally adjusted), with annual growth falling from 4.9 percent and 5.7 percent to 4.8 percent and 5.5 percent, respectively. Monthly growth in the U.S. National Index is expected to remain flat in June (seasonally adjusted) and grow 5.3 percent year-over-year, down from 5.6 percent annual growth in May.

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 June 2017 Zillow Home Value Index. The June S&P CoreLogic Case-Shiller Indices will not be officially released until Tuesday, August 29.
The year-over-year change for the Case-Shiller National index will probably be smaller in June than in May.

Zillow forecast for Case-Shiller

FOMC Statement: No Change to Policy, Balance Sheet Change Coming "Relatively Soon"

by Bill McBride on 7/26/2017 02:02:00 PM

FOMC Statement:

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

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, and labor market conditions will strengthen somewhat further. Inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the Committee's 2 percent objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

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

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. The Committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

For the time being, the Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee expects to begin implementing its balance sheet normalization program relatively soon, provided that the economy evolves broadly as anticipated; this program is described in the June 2017 Addendum to the Committee's Policy Normalization Principles and Plans.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; and Jerome H. Powell.
emphasis added

A few Comments on June New Home Sales

by Bill McBride on 7/26/2017 11:30:00 AM

New home sales for June were reported at 610,000 on a seasonally adjusted annual rate basis (SAAR). This was close to the consensus forecast, however the three previous months were revised down. Still, overall, this was a decent report.

Sales were up 9.1% year-over-year in June.

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

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 9.1% year-over-year in June.

For the first six months of 2017, new home sales are up 10.9% compared to the same period in 2016.

This was a strong year-over-year increase through June, 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 June 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 June

by Bill McBride on 7/26/2017 10:12:00 AM

The Census Bureau reports New Home Sales in June 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 June 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 0.8 percent above the revised May rate of 605,000 and is 9.1 percent above the June 2016 estimate of 559,000."
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 increased in June to 5.4 months from 5.3 month in May.

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 June was 272,000. This represents a supply of 5.4 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 June 2017 (red column), 55 thousand new homes were sold (NSA). Last year, 50 thousand homes were sold in June.

The all time high for June was 115 thousand in 2005, and the all time low for June was 28 thousand in both 2010 and 2011.

This was close to expectations of 612,000 sales SAAR, however the previous months were revised down.   I'll have more later today.

MBA: Mortgage Applications Increase in Latest Weekly Survey

by Bill McBride on 7/26/2017 07:00:00 AM

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

Mortgage applications increased 0.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 21, 2017.

... The Refinance Index increased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier to the lowest level since May 2017. The unadjusted Purchase Index decreased 2 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) decreased to 4.17 percent from 4.22 percent, with points increasing to 0.40 from 0.31 (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 will not pick up significantly unless mortgage 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, July 25, 2017

Wednesday: FOMC Announcement, New Home Sales

by Bill McBride on 7/25/2017 09:18:00 PM

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

• At 10:00 AM, New Home Sales for June from the Census Bureau. The consensus is for 612 thousand SAAR, up from 610 thousand in May.

• At 2:00 PM, FOMC Meeting Announcement. No change to policy is expected at this meeting.

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

by Bill McBride on 7/25/2017 05:06:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.6% year-over-year in May

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 2.7% above the previous bubble peak. However, in real terms, the National index (SA) is still about 13.3% below the bubble peak.

The year-over-year increase in prices is mostly moving sideways now just over 5%. In May, the index was up 5.6% YoY.

Usually people graph nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller 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, and the monthly Case-Shiller Composite 20 SA (through May) 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.



Real House Prices

Real House PricesThe second graph shows the same two 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, and the Composite 20 index is back to March 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 and Composite 20 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, and the Composite 20 index is back to August 2003 levels.

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.

Chemical Activity Barometer increased slightly in July

by Bill McBride on 7/25/2017 02:57:00 PM

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

From the American Chemistry Council: Chemical Activity Barometer Notches Gain

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), ticked up 0.1 percent in July following a flat reading in June and a 0.2 percent gain in May. Gains during the second quarter averaged 0.2 percent following average gains of 0.5 percent during the first quarter. Compared to a year earlier, the CAB is up 3.6 percent year-over-year, an easing from recent year-over-year gains. 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.

Case-Shiller: National House Price Index increased 5.6% year-over-year in May

by Bill McBride on 7/25/2017 09:13:00 AM

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

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

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

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.6% annual gain in May, the same as the prior month. The 10-City Composite annual increase came in at 4.9%, down from 5.0% the previous month. The 20-City Composite posted a 5.7% year-over-year gain, down from 5.8% in April.

Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities. In May, Seattle led the way with a 13.3% year-over-year price increase, followed by Portland with 8.9%, and Denver overtaking Dallas with a 7.9% increase. Nine cities reported greater price increases in the year ending May 2017 versus the year ending April 2017.
...
Before seasonal adjustment, the National Index posted a month -over-month gain of 1.0% in May. The 10-City Composite posted a 0.7% increase and 20-City Composite reported a 0.8% increase in May. After seasonal adjustment, the National Index recorded a 0. 2% month-over-month increase. The 10- City Composite remained stagnant with no month-over-month increase. The 20-City Composite posted a 0.1% month-over-month increase. All 20 cities reported increases in May before seasonal adjustment; after seasonal adjustment, 14 cities saw prices rise.

“Home prices continue to climb and outpace both inflation and wages,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Housing is not repeating the bubble period of 2000-2006: price increases vary across the country unlike the earlier period when rising prices were almost universal; the number of homes sold annually is 20% less today than in the earlier period and the months’ supply is declining, not surging. The small supply of homes for sale, at only about four months’ worth, is one cause of rising prices. New home construction, higher than during the recession but still low, is another factor in rising prices.

“For the last 19 months, either Seattle or Portland OR was the city with fastest rising home prices based on 12-month gains. Since the national index bottomed in February 2012, San Francisco has the largest gain. Using Census Bureau data for 2011 to 2015, it is possible to compare these three cities to national averages. The proportion of owner-occupied homes is lower than the national average in all three cities with San Francisco being the lowest at 36%, Seattle at 46%, and Portland at 52%. Nationally, the figure is 64%. The key factor for the rise in home prices is population growth from 2010 to 2016: the national increase is 4.7%, but for these cities, it is 8.2% in San Francisco, 9.6% in Portland and 15.7% in Seattle. A larger population combined with more people working leads to higher home prices.”
emphasis added
I'll have more later.

Monday, July 24, 2017

Tuesday: Case-Shiller House Prices

by Bill McBride on 7/24/2017 07:49:00 PM

From Matthew Graham at Mortgage News Daily: Rates Begin Week Unchanged at July's Lows

Mortgage rates held steady today, which leaves them in line with the lowest levels in July. [30YR FIXED - 4.00%] ... The most obvious calendar item is the Fed Announcement on Wednesday.
Tuesday:
• At 9:00 AM ET, FHFA House Price Index for May 2017. This was originally a GSE only repeat sales, however there is also an expanded index.

• At 9:00 AM, S&P/Case-Shiller House Price Index for May. The consensus is for a 5.8% year-over-year increase in the Comp 20 index for May.

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

Funny Real Estate Quote from 10 Years Ago

by Bill McBride on 7/24/2017 03:51:00 PM

Time flies!

Ten years ago, the NAR reported existing home sales of 5.75 million SAAR for June 2007. Since then sales for June 2007 have been revised down to 5.120 million SAAR.

Note: Earlier today, the NAR reported June 2017 sales at 5.52 million SAAR - after several years of increasing sales.

Ten years ago, NAR's senior economist said:

"It is too early to say if home sales have already passed bottom," said Lawrence Yun, the senior economist for the group in the report. "Still, major declines in home sales are likely to have occurred already and further declines, if any, are likely to be modest given the accumulating pent-up demand."
Yes. It was too early to call the bottom - by several years. And sales fell much further to a low of 3.3 million SAAR in July 2010 (Sales for a number of months were below 4 million SAAR).

A Few Comments on June Existing Home Sales

by Bill McBride on 7/24/2017 01:06:00 PM

Earlier: NAR: "Existing-Home Sales Retreat 1.8 Percent in June"

Inventory is still very low and falling year-over-year (down 7.1% year-over-year in June). Inventory has declined year-over-year for 25 consecutive months, although the pace of decline has slowed over the two months.

I started the year expecting inventory would be increasing year-over-year by the end of 2017. That now seems unlikely, but still possible. In April, inventory was down 9.4% year-over-year, and in May, inventory was down 7.9% - and in June, down 7.1%. If that trend continues, inventory might be close to unchanged (or just down slightly) year-over-year by December.

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

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

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in June (red column) were above  June2016. (NSA) - and the highest for June since 2006.

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

NAR: "Existing-Home Sales Retreat 1.8 Percent in June"

by Bill McBride on 7/24/2017 10:11:00 AM

From the NAR: Existing-Home Sales Retreat 1.8 Percent in June

Existing-home sales slipped in June as low supply kept homes selling at a near record pace but ultimately ended up muting overall activity, according to the National Association of Realtors®. Only 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, decreased 1.8 percent to a seasonally adjusted annual rate of 5.52 million in June from 5.62 million in May. Despite last month's decline, June's sales pace is 0.7 percent above a year ago, but is the second lowest of 2017 (February, 5.47 million).
...
Total housing inventory at the end of June declined 0.5 percent to 1.96 million existing homes available for sale, and is now 7.1 percent lower than a year ago (2.11 million) and has fallen year-over-year for 25 consecutive months. Unsold inventory is at a 4.3-month supply at the current sales pace, which is down from 4.6 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 June (5.63 million SAAR) were 1.8% lower than last month, and were 0.7% above the June 2016 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory decreased to 1.96 million in June from 1.97 million in May.   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 7.1% year-over-year in June compared to June 2016.  

Months of supply was at 4.3 months in June.

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

Sunday, July 23, 2017

Sunday Night Futures

by Bill McBride on 7/23/2017 09:27:00 PM

Weekend:
Schedule for Week of July 23, 2017

Monday:
• At 10:00 AM ET, Existing Home Sales for June from the National Association of Realtors (NAR). The consensus is for 5.58 million SAAR, down from 5.62 million in May. Housing economist Tom Lawler expects the NAR to report sales of 5.59 million SAAR for June.

From CNBC: Pre-Market Data and Bloomberg futures: S&P futures are down 3, and DOW futures are down 25 (fair value).

Oil prices were down over the last week with WTI futures at $45.72 per barrel and Brent at $48.00 per barrel.  A year ago, WTI was at $43, and Brent was at $44 - so oil prices are up 5% to 10% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.28 per gallon - a year ago prices were at $2.16 per gallon - so gasoline prices are up 12 cents per gallon year-over-year.

Hotels: Occupancy Rate Down Slightly Year-over-Year

by Bill McBride on 7/23/2017 12:23:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 15 July

The U.S. hotel industry reported mostly positive year-over-year results in the three key performance metrics during the week of 9-15 July 2017, according to data from STR.

In comparison with the week of 10-16 July 2016, the industry recorded the following:

Occupancy: -0.1% to 77.4%
• Average daily rate (ADR): +1.7% to US$130.76
• Revenue per available room (RevPAR): +1.6% to US$101.15
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, dash light blue is 2016, dashed orange 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 slightly behind the record year in 2015.

For hotels, occupancy will be strong over the summer.

Data Source: STR, Courtesy of HotelNewsNow.com

Saturday, July 22, 2017

Schedule for Week of July 23, 2017

by Bill McBride on 7/22/2017 08:09:00 AM

The key economic reports this week are the advance estimate of Q1 GDP, New and Existing Home sales for June, and Case-Shiller house prices.

The FOMC meets on Tuesday and Wednesday, and no change to policy is expected.

----- Monday, July 24th -----

Existing Home Sales10:00 AM: Existing Home Sales for June from the National Association of Realtors (NAR). The consensus is for 5.58 million SAAR, down from 5.62 million in May.

The graph shows existing home sales from 1994 through the report last month.

Housing economist Tom Lawler expects the NAR to report sales of 5.59 million SAAR for June.

----- Tuesday, July 25th -----

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

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

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

The consensus is for a 5.8% year-over-year increase in the Comp 20 index for May.

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

----- Wednesday, July 26th -----

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

New Home Sales10:00 AM ET: New Home Sales for June from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the May sales rate.

The consensus is for 612 thousand SAAR, up from 610 thousand in May.

2:00 PM: FOMC Meeting Announcement. No change to policy is expected at this meeting.

----- Thursday, July 27th -----

8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 240 thousand initial claims, up from 233 thousand the previous week.

8:30 AM: Durable Goods Orders for June from the Census Bureau. The consensus is for a 3.2% increase in durable goods orders.

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

10:00 AM: the Q2 Housing Vacancies and Homeownership from the Census Bureau.

11:00 AM: the Kansas City Fed manufacturing survey for July.

----- Friday, July 27th -----

8:30 AM: Gross Domestic Product, 2nd quarter 2017 (Advance estimate). The consensus is that real GDP increased 2.6% annualized in Q2, up from 1.4% in Q1.

10:00 AM: University of Michigan's Consumer sentiment index (final for July). The consensus is for a reading of 93.1, unchanged from the preliminary reading 93.1.

Friday, July 21, 2017

Oil Rigs decline slightly

by Bill McBride on 7/21/2017 03:48:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on July 21, 2017:

• Total US oil rigs were down 1 to 764

• Horizontal oil rigs were down 2 to 653
...
• $45 WTI seems sufficient to restrain US oil rig count growth

• However, shale well productivity yoy continues to surge based on early data.   If the numbers continue to hold up, $45 will soon be a ceiling, not a floor, and oil prices could fall to $39-42 / barrel WTI by this time next year
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.

Q2 GDP Forecasts

by Bill McBride on 7/21/2017 03:15:00 PM

From Merrill Lynch:

Next week is the annual 2017 revision to the NIPAs, which will update real GDP growth and PCE inflation since 2014. ... Updates to the underlying source data and methodology are likely to result in only slight changes to past GDP growth. The story for inflation is less clear.

More important will be 2Q GDP growth, which we expect will accelerate to 2.1%.
From Goldman Sachs:
Our Q2 GDP tracking has declined [to 1.9%]
From the Altanta Fed: GDPNow
The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2017 is 2.5 percent on July 19, up from 2.4 percent on July 14.
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast stands at 2.0% for 2017:Q2 and 2.0% for 2017:Q3.
CR Note: Looks like real GDP growth will be around 2% in Q2.

Goldman: FOMC Preview

by Bill McBride on 7/21/2017 12:25:00 PM

The FOMC will meet on Tuesday and Wednesday next week, and no change to policy is expected.

Here are a few brief excerpts from a note by Goldman Sachs economist David Mericle: FOMC Preview

We do not expect any policy changes at the July FOMC meeting and expect only limited changes to the post-meeting statement. The statement is likely to upgrade the description of job growth, but might also recognize that inflation has declined further. We think the statement is also likely to acknowledge that the balance sheet announcement is now closer at hand.

Looking ahead, we continue to expect the FOMC to announce the start of balance sheet normalization in September. We see a 5% probability that the next rate hike will come in September, a 5% probability that it will come in November, and a 50% probability that it will come in December, for a 60% cumulative probability of at least three hikes this year.

BLS: Unemployment Rates Lower in 10 states in June, Two States at New Series Lows

by Bill McBride on 7/21/2017 10:20:00 AM

From the BLS: Regional and State Employment and Unemployment Summary

Unemployment rates were lower in June in 10 states, higher in 2 states, and stable in 38 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. Twenty-seven states had jobless rate decreases from a year earlier and 23 states and the District had little or no change. The national unemployment rate, 4.4 percent, was little changed from May but was 0.5 percentage point lower than in June 2016.
...
Colorado and North Dakota had the lowest unemployment rates in June, 2.3 percent each. The rates in North Dakota (2.3 percent) and Tennessee (3.6 percent) set new series lows. ... Alaska had the highest jobless rate, 6.8 percent, followed by New Mexico, 6.4 percent.
emphasis added
State Unemployment Click on graph for larger image.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement.   The yellow squares are the lowest unemployment rate per state since 1976.

Note: The larger yellow markers indicate the states that reached the all time low since the end of the 2007 recession.  These ten states are: Arkansas, California, Colorado, Maine, Mississippi, North Dakota, Oregon, Tennessee, Washington, and Wisconsin.

The states are ranked by the highest current unemployment rate. Alaska, at 6.8%, had the highest state unemployment rate.

State UnemploymentThe second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 11 states with an unemployment rate at or above 11% (red).

Currently no state has an unemployment rate at or above 7% (light blue); Only two states and D.C. are at or above 6% (dark blue). The states are Alaska (6.8%) and New Mexico (6.4%).  D.C. is at 6.2%.

Thursday, July 20, 2017

Lawler: Early Read on Existing Home Sales in June

by Bill McBride on 7/20/2017 05:20:00 PM

From housing economist Tom Lawler:

Based on publicly-available local realtor/MLS reports from across the country released through today, I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.59 million in June, down 0.5% from May’s preliminary pace and up 2.0% from last May’s seasonally adjusted pace. On the inventory front, local realtor/MLS data suggest that there was a smaller YOY decline in the number of homes for sale in June compared to May, and I project that the NAR’s estimate of the number of existing homes for sale in June will be 1.97 million, up 0.5% from May’s preliminary estimate and down 6.6% from last May’s estimate. Finally, I project that the NAR’s estimate of the median existing single-family home sales price in June will be up 6.1% from last June.

In terms of inventories, there are sizable differences in trends across markets. As an example, the California Association of Realtors’ tabulation is that active listings of existing SF homes in California last month were down 13.5% from a year earlier, compared to a YOY decline of 12.4% in May. For Texas, in contrast, the Real Estate Center at Texas A&M University reported that active residential listings in Texas last month were up 13.0% from last June, compared to a YOY increase of 10.2% in May.

CR Note: The NAR is scheduled to release existing home sales for June on Monday, July 24th. The consensus forecast is for sales of 5.62 million SAAR.

NMHC: Apartment Market Tightness Index remained negative in July Survey

by Bill McBride on 7/20/2017 03:50:00 PM

From the National Multifamily Housing Council (NMHC): Apartment Markets Decline Slightly in the July NMHC Quarterly Survey

All four indexes of the National Multifamily Housing Council’s (NMHC) July Quarterly Survey of Apartment Market Conditions remained slightly below the breakeven level of 50, the fourth consecutive quarter indicating softening conditions. The Market Tightness (43), Sales Volume (47), Equity Financing (46), and Debt Financing (47) Indexes all improved from April, but still hovered just below 50.

“All four indexes are below 50 but rising, suggesting that the softening is less wide-spread than in previous quarters,” said Mark Obrinsky, NMHC’s SVP of Research and Chief Economist. “Despite some softness at the high end of the apartment market—due to construction having finally ramped up to the level needed—demand for apartments will continue to be substantial for years to come.”
...
The Market Tightness Index edged up from 41 to 43, as almost half of respondents (48 percent) reported unchanged conditions. One-third (33 percent) of respondents saw conditions as looser than three months ago, while the remaining 19 percent reported tighter conditions. This marks the seventh consecutive quarter of overall declining conditions.
emphasis added
Apartment Tightness Index
Click on graph for larger image.

This graph shows the quarterly Apartment Tightness Index. Any reading below 50 indicates looser conditions from the previous quarter. This indicates market conditions were looser over the last quarter.

As I've mentioned before, this index helped me call the bottom for effective rents (and the top for the vacancy rate) early in 2010.

This is the seventh consecutive quarterly survey indicating looser conditions - it appears supply has caught up with demand - and I expect rent growth to continue to slow.

Black Knight: Mortgage Delinquencies mostly unchanged in June

by Bill McBride on 7/20/2017 12:49:00 PM

From Black Knight: Black Knight’ First Look at June 2017 Mortgage Data: Delinquencies Hold Steady Despite Seasonal Pressure; Low Interest Rates Help Prepayments Continue to Climb

• Despite upward seasonal pressure, mortgage delinquencies held steady at 3.8 percent in June

• While total non-current inventory saw a three percent seasonal rise over Q2 2017, the inventory of serious delinquencies (loans 90 or more days past due) and active foreclosures fell by seven percent

• In total, serious delinquencies and active foreclosures have declined by 17 percent (nearly 200,000 loans) this year

• Low interest rates helped push prepayment activity up another 5.3 percent in June, following May’s 23 percent rise
According to Black Knight's First Look report for June, the percent of loans delinquent increased slightly in June compared to May, and declined 11.8% year-over-year.

The percent of loans in the foreclosure process declined 2.7% in June and were down 27.0% 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 3.80% in June, up from 3.79% in May.

The percent of loans in the foreclosure process declined in June to 0.81%.

The number of delinquent properties, but not in foreclosure, is down 246,000 properties year-over-year, and the number of properties in the foreclosure process is down 148,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  June
2017
May
2017
June
2016
June
2015
Delinquent3.80%3.79%4.31%4.79%
In Foreclosure0.81%0.83%1.10%1.56%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:1,932,0001,927,0002,178,0002,415,000
Number of properties in foreclosure pre-sale inventory:410,000421,000558,000789,000
Total Properties2,342,0002,348,0002,736,0003,204,000

Earlier: Philly Fed Manufacturing Survey "Region continues to grow but at a slower pace" in July

by Bill McBride on 7/20/2017 10:29:00 AM

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

Manufacturing activity in the region continues to grow but at a slower pace, according to results from the July Manufacturing Business Outlook Survey. The diffusion indexes for general activity, new orders, shipments, employment, and work hours remained positive but fell from their readings in June. Respondents also reported a moderation of price pressures this month. Firms remained generally optimistic about future growth. More than one-third of the manufacturers expect to add to their payrolls over the next six months.

The index for current manufacturing activity in the region decreased from a reading of 27.6 in June to 19.5 this month. The index has been positive for 12 consecutive months, but July’s reading is the lowest since November. ... Firms reported overall increases in manufacturing employment this month, but the current employment index fell 5 points. The index has been positive for eight consecutive months.
emphasis added
Here is a graph comparing the regional Fed surveys and the ISM manufacturing index:

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

The New York and Philly Fed surveys are averaged together (yellow, through July), 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 June (right axis).

This suggests the ISM manufacturing index will show slower, but still solid expansion, in July.

Weekly Initial Unemployment Claims decrease to 233,000

by Bill McBride on 7/20/2017 08:33:00 AM

The DOL reported:

In the week ending July 15, the advance figure for seasonally adjusted initial claims was 233,000, a decrease of 15,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 247,000 to 248,000. The 4-week moving average was 243,750, a decrease of 2,250 from the previous week's revised average. The previous week's average was revised up by 250 from 245,750 to 246,000.
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 243,750.

This was lower than the consensus forecast.

The low level of claims suggests relatively few layoffs.

Wednesday, July 19, 2017

Thursday: Unemployment Claims, Philly Fed Mfg

by Bill McBride on 7/19/2017 07:22:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates at 3-Week Lows

Although today's rates aren't appreciably lower than yesterday's, they're technically the best we've seen since June 28th.  More lenders are quoting top tier conventional 30yr fixed rates of 4.0% instead of 4.125%, and some of the aggressive lenders are back down to 3.875%.
Tuesday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 245 thousand initial claims, down from 247 thousand the previous week.

• Also at 8:30 AM, the Philly Fed manufacturing survey for July. The consensus is for a reading of 23.5, down from 27.6.

Comments on June Housing Starts

by Bill McBride on 7/19/2017 03:15:00 PM

Earlier: Housing Starts increased to 1.215 Million Annual Rate in June

The housing starts report released this morning showed starts were up 8.3% in June compared to May, and were up 2.1% year-over-year compared to June 2016.  This was a solid report and was above the consensus forecast.

Note that multi-family starts are volatile month-to-month, and has seen wild swings over the last year.

This first graph shows the month to month comparison between 2016 (blue) and 2017 (red).

Starts Housing 2015 and 2016Click on graph for larger image.

Starts were up 2.1% in June 2017 compared to June 2016, and starts are up 6.0% year-to-date.

Note that single family starts are up 10.7% year-to-date, and the weakness (as expected) has been in multi-family starts.

My guess is starts will increase around 3% to 7% in 2017.

Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

Multifamily Starts and completionsThe blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) increased steadily over the last few years - but has turned down recently.  Completions (red line) have lagged behind - but completions have been generally catching up (more deliveries).  Completions lag starts by about 12 months.

I think the growth in multi-family starts is behind us - in fact, multi-family starts probably peaked in June 2015 (at 510 thousand SAAR) - although I expect solid multi-family starts for a few more years (based on demographics).

Single family Starts and completionsThe second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Note the exceptionally low level of single family starts and completions.  The "wide bottom" was what I was forecasting following the recession, and now I expect a few years of increasing single family starts and completions.

AIA: Architecture Billings Index positive in June

by Bill McBride on 7/19/2017 09:52:00 AM

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

From the AIA: Architecture firms end second quarter on a strong note

For the fifth consecutive month, architecture firms recorded increasing demand for design services as reflected in the June Architecture Billings Index (ABI). 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 June ABI score was 54.2, up from a score of 53.0 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 58.6, down from a reading of 62.4 the previous month, while the new design contracts index decreased from 54.8 to 53.7.

“So far this year, new activity coming into architecture firms has generally exceeded their ability to complete ongoing projects,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “Now, firms seem to be ramping up enough to manage these growing workloads.”
...
• Regional averages: South (54.8), West (53.1), Midwest (51.9), Northeast (51.5)

• Sector index breakdown: multi-family residential (57.1), mixed practice (53.8), institutional (52.6), commercial / industrial (52.1)
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 54.2 in June, up from 53.0 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.