Wednesday, January 31, 2018

Thursday: Unemployment Claims, ISM Mfg Index, Construction Spending, Vehicle Sales

by Bill McBride on 1/31/2018 08:08:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 235 thousand initial claims, up from 233 thousand the previous week.

• At 10:00 AM, ISM Manufacturing Index for January. The consensus is for the ISM to decrease to 58.7.  The PMI was at 59.7% in December, the employment index was at 57.0%, and the new orders index was at 69.4%.

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

• All day, Light vehicle sales for January. The consensus is for light vehicle sales to be 17.3 million SAAR in January, down from 17.8 million in December (Seasonally Adjusted Annual Rate).

Fannie Mae: Mortgage Serious Delinquency rate increased in December due to Hurricanes

by Bill McBride on 1/31/2018 04:52:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate increased to 1.24% in December, up from 1.12% in November. The serious delinquency rate is up from 1.20% in December 2016.

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

By vintage, for loans made in 2004 or earlier (4% of portfolio), 3.28% are seriously delinquent. For loans made in 2005 through 2008 (6% of portfolio), 6.55% are seriously delinquent, For recent loans, originated in 2009 through 2017 (90% of portfolio), only 0.53% are seriously delinquent. So Fannie is still working through poor performing loans from the bubble years.

This increase in the delinquency rate was due to the hurricanes - no worries about the overall market - and we might see a further increase over the next month or so (These are serious delinquencies, so it takes three months late to be counted).

After the hurricane bump, maybe the rate will decline to 0.5 to 0.7 percent or so to a cycle bottom.

Note: Freddie Mac reported earlier.

FOMC Statement: No Change in Policy

by Bill McBride on 1/31/2018 02:02:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Gains in employment, household spending, and business fixed investment have been solid, and the unemployment rate has stayed low. On a 12-month basis, both overall inflation and inflation for items other than food and energy have continued to run below 2 percent. Market-based measures of inflation compensation have increased in recent months but 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 expects that, with further gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market conditions will remain strong. Inflation on a 12‑month basis is expected to move up this year and 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 1-1/4 to 1‑1/2 percent. The stance of monetary policy remains accommodative, thereby supporting strong 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 further 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.

Voting for the FOMC monetary policy action were Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Jerome H. Powell; Randal K. Quarles; and John C. Williams.
emphasis added

NAR: Pending Home Sales Index Increased 0.5% in December, Up 0.5% Year-over-year

by Bill McBride on 1/31/2018 10:05:00 AM

From the NAR: Pending Home Sales Tick Up 0.5 Percent in December

Pending home sales were up slightly in December for the third consecutive month, according to the National Association of Realtors®. In 2018, existing-home sales and price growth are forecast to moderate, primarily because of the new tax law's expected impact in high-cost housing markets.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, moved higher 0.5 percent to 110.1 in December from an upwardly revised 109.6 in November. With last month's modest increase, the index is now 0.5 percent above a year ago.
...
The PHSI in the Northeast dipped 5.1 percent to 93.9 in December, and is now 2.7 percent below a year ago. In the Midwest the index decreased 0.3 percent to 105.0 in December, but is still 0.3 percent higher than December 2016.

Pending home sales in the South grew 2.6 percent to an index of 126.9 in December and are now 4.0 percent higher than last December. The index in the West rose 1.5 percent in December to 101.7, but is still 3.1 percent below a year ago.
emphasis added
This was close to expectations of a 0.4% 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 January and February.

ADP: Private Employment increased 234,000 in January

by Bill McBride on 1/31/2018 08:19:00 AM

From ADP:

Private sector employment increased by 234,000 jobs from December to January according to the January ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
“We’ve kicked off the year with another month of unyielding job gains,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Service providers were firing on all cylinders, posting their strongest gain in more than a year. We also saw robust hiring from midsize and large companies, while job growth in smaller firms slowed slightly.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market juggernaut marches on. Given the strong January job gain, 2018 is on track to be the eighth consecutive year in which the economy creates over 2 million jobs. If it falls short, it is likely because businesses can’t find workers to fill all the open job positions.”
This was above the consensus forecast for 195,000 private sector jobs added in the ADP report. 

The BLS report for January will be released Friday, and the consensus is for 176,000 non-farm payroll jobs added in January.

MBA: Mortgage Applications Decrease in Latest Weekly Survey

by Bill McBride on 1/31/2018 07:00:00 AM

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

Mortgage applications decreased 2.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 26, 2018.

... The Refinance Index decreased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index increased 15 percent compared with the previous week and was 10 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to its highest level since March 2017, 4.41 percent, from 4.36 percent, with points increasing to 0.56 from 0.54 (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 10% year-over-year.

Tuesday, January 30, 2018

Wednesday: FOMC Annoucement, ADP Employment, Pending Home Sales, Chicago PMI

by Bill McBride on 1/30/2018 07:46:00 PM

From Merrill Lynch on FOMC announcement:

The FOMC meeting on 31 January is likely to send a modestly hawkish signal, as FOMC officials become more convinced of the shift from the disinflation of 2017 and emphasize the momentum in the real economy. The FOMC will only have the statement to communicate updated views, as there is no press conference or Summary of Economic Projections (SEP). This will mark Janet Yellen's last FOMC meeting as Chair.
Wednesday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 8:15 AM, The ADP Employment Report for January. This report is for private payrolls only (no government). The consensus is for 195,000 payroll jobs added in January, down from 250,000 added in December.

• At 9:45 AM, Chicago Purchasing Managers Index for January. The consensus is for a reading of 64.0, down from 67.6 in December.

• At 10:00 AM, Pending Home Sales Index for December. The consensus is for a 0.4% increase in the index.

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

Update: A few comments on the Seasonal Pattern for House Prices

by Bill McBride on 1/30/2018 05:24:00 PM

CR Note: This is a repeat of earlier posts with updated graphs.

A few key points:
1) There is a clear seasonal pattern for house prices.
2) The surge in distressed sales during the housing bust distorted the seasonal pattern.
3) Even though distressed sales are down significantly, the seasonal factor is based on several years of data - and the factor is now overstating the seasonal change (second graph below).
4) Still the seasonal index is probably a better indicator of actual price movements than the Not Seasonally Adjusted (NSA) index.

For in depth description of these issues, see former Trulia chief economist Jed Kolko's article "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data"

Note: I was one of several people to question the change in the seasonal factor (here is a post in 2009) - and this led to S&P Case-Shiller questioning the seasonal factor too (from April 2010).  I still use the seasonal factor (I think it is better than using the NSA data).

House Prices month-to-month change NSA Click on graph for larger image.

This graph shows the month-to-month change in the NSA Case-Shiller National index since 1987 (through November 2017).   The seasonal pattern was smaller back in the '90s and early '00s, and increased once the bubble burst.

The seasonal swings have declined since the bubble.

Case Shiller Seasonal FactorsThe second graph shows the seasonal factors for the Case-Shiller National index since 1987. The factors started to change near the peak of the bubble, and really increased during the bust.

The swings in the seasonal factors has started to decrease, and I expect that over the next several years - as the percent of distressed sales declines further and recent history is included in the factors - the seasonal factors will move back towards more normal levels.

However, as Kolko noted, there will be a lag with the seasonal factor since it is based on several years of recent data.

Freddie Mac: Mortgage Serious Delinquency Rate Increased Sharply in December due to Hurricanes

by Bill McBride on 1/30/2018 01:57:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in December was 1.08%, up sharply from 0.95% in November. Freddie's rate is up from 1.00% in December 2016.

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

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

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

This increase in the delinquency rate was due to the hurricanes - no worries about the overall market - and we might see a further increase over the next month or so (These are serious delinquencies, so it takes three months late to be counted).

After the hurricane bump, maybe the rate will decline to a cycle bottom in the 0.5% to 0.8% range..

Note: Fannie Mae will report for December soon.

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

by Bill McBride on 1/30/2018 12:57:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 6.2% year-over-year in November

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 6.4% above the previous bubble peak. However, in real terms, the National index (SA) is still about 11.6% below the bubble peak (and historically there has been an upward slope to real house prices).

The year-over-year increase in prices is mostly moving sideways now around 6%. In November, the index was up 6.2% 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 $282,000 today adjusted for inflation (41%).  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 August) 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 February 2006 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 September 2004 levels, and the Composite 20 index is back to April 2004.

In real terms, house prices are back to 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 December 2003 levels, and the Composite 20 index is back to October 2003 levels.

In real terms, prices are back to mid 2004 levels, and the price-to-rent ratio is back to 2003 - and the price-to-rent ratio has been increasing slowly.

HVS: Q4 2017 Homeownership and Vacancy Rates

by Bill McBride on 1/30/2018 10:53:00 AM

The Census Bureau released the Residential Vacancies and Homeownership report for Q4 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 64.2% in Q4, from 63.9% in Q3.

I'd put more weight on the decennial Census numbers - and given changing demographics, the homeownership rate has probably bottomed.

Homeowner Vacancy RateThe HVS homeowner vacancy was unchanged at 1.6% in Q4. 

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

Rental Vacancy RateThe rental vacancy rate decreased to 6.9% in Q4.

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 has bottomed - and that the rental vacancy rate has bottomed for this cycle.

Case-Shiller: National House Price Index increased 6.2% year-over-year in November

by Bill McBride on 1/30/2018 09:12:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for November ("November" is a 3 month average of September, October and November 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: Cities in the West: Seattle, Las Vegas and San Francisco Lead Gains in S&P Corelogic Case-Shiller Home Price Indices

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 6.2% annual gain in November, up from 6.1% in the previous month. The 10-City Composite annual increase came in at 6.1%, up from 5.9% the previous month. The 20-City Composite posted a 6.4% year-over-year gain, up from 6.3% the previous month.

Seattle, Las Vegas, and San Francisco reported the highest year-over-year gains among the 20 cities. In November, Seattle led the way with a 12.7% year-over-year price increase, followed by Las Vegas with a 10.6% increase, and San Francisco with a 9.1% increase. Six cities reported greater price increases in the year ending November 2017 versus the year ending October 2017.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.2% in November. The 10-City and 20-City Composites reported increases of 0.3% and 0.2%, respectively. After seasonal adjustment, the National Index recorded a 0.7% month-over-month increase in November. The 10-City and 20-City Composites posted 0.8% and 0.7% month-over-month increases, respectively. Ten of 20 cities reported increases in November before seasonal adjustment, while all 20 cities reported increases after seasonal adjustment.

“Home prices continue to rise three times faster than the rate of inflation,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The S&P CoreLogic Case-Shiller National Index year-over-year increases have been 5% or more for 16 months; the 20-City index has climbed at this pace for 28 months. Given slow population and income growth since the financial crisis, demand is not the primary factor in rising home prices. Construction costs, as measured by National Income and Product Accounts, recovered after the financial crisis, increasing between 2% and 4% annually, but do not explain all of the home price gains. From 2010 to the latest month of data, the construction of single family homes slowed, with single family home starts averaging 632,000 annually. This is less than the annual rate during the 2007-2009 financial crisis of 698,000, which is far less than the long-term average of slightly more than one million annually from 1959 to 2000 and 1.5 million during the 2001-2006 boom years. Without more supply, home prices may continue to substantially outpace inflation.”

“Looking across the 20 cities covered here, those that enjoyed the fastest price increases before the 2007-2009 financial crisis are again among those cities experiencing the largest gains. San Diego, Los Angeles, Miami and Las Vegas, price leaders in the boom before the crisis, are again seeing strong price gains. They have been joined by three cities where prices were above average during the financial crisis and continue to rise rapidly – Dallas, Portland OR, and Seattle.”
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 3.6% from the peak, and up 0.8% in November (SA).

The Composite 20 index is off slightly from the peak, and up 0.8% (SA) in November.

The National index is 6.4% above the bubble peak (SA), and up 0.7% (SA) in November.  The National index is up 43.8% 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 6.1% compared to November 2016.  The Composite 20 SA is up 6.4% year-over-year.

The National index SA is up 6.2% year-over-year.

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

I'll have more later.

Monday, January 29, 2018

"Mortgage Rates Surge to Highest Levels in More Than 3 Years"

by Bill McBride on 1/29/2018 07:00:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Surge to Highest Levels in More Than 3 Years

Mortgage rates are in trouble. This will come as no surprise to regular readers. For the past few weeks, rates made several successive runs up to the highest levels in more than 9 months. It was really only the spring of 2017 that stood in the way of rates being the highest since early 2014. After Friday marked another "highest in 9 months" day, it would only have taken a moderate movement to break into the "3+ year" territory. The move ended up being even bigger.

From a week and a half ago, most borrowers are now looking at another eighth of a percentage point higher in rate. In total, rates are up the better part of half a point since December 15th. [30YR FIXED - 4.375-4.5%]
emphasis added
Tuesday:
• At 9:00 AM ET, S&P/Case-Shiller House Price Index for November. The consensus is for a 6.4% year-over-year increase in the Comp 20 index for November.

• At 10:00 AM, Q4 Housing Vacancies and Homeownership from the Census Bureau.

Q4 2017 GDP Details on Residential and Commercial Real Estate

by Bill McBride on 1/29/2018 04:39:00 PM

The BEA has released the underlying details for the Q4 advance GDP report.

The BEA reported that investment in non-residential structures increased at a 6.8% annual pace in Q4.  This is a turnaround from early last year when non-residential investment declined due to less investment in petroleum exploration. Investment in petroleum and natural gas exploration increased substantially in Q4, from a $55 billion annual rate in Q4 2016 to a $107 billion annual rate in Q4 2017 - but is still down from a recent peak of $165 billion in Q4 2014.

Without the increase in petroleum and natural gas exploration, non-residential investment would be down year-over-year.

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

The first graph shows investment in offices, malls and lodging as a percent of GDP.

Investment in offices decreased in Q4, and is down 7% year-over-year.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and was up 4% year-over-year in Q4.   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment increased in Q4, and lodging investment is up 5% year-over-year.

Residential Investment Components The second graph is for Residential investment components as a percent of GDP. According to the Bureau of Economic Analysis, RI includes new single family structures, multifamily structures, home improvement, Brokers’ commissions and other ownership transfer costs, and a few minor categories (dormitories, manufactured homes).

Home improvement was the top category for five consecutive years following the housing bust ... but now investment in single family structures has been back on top for the last four years and will probably stay there for a long time.

However - even though investment in single family structures has increased from the bottom - single family investment is still very low, and still below the bottom for previous recessions as a percent of GDP. I expect further increases over the next few years.

Investment in single family structures was $272 billion (SAAR) (about 1.4% of GDP), and was up in Q4 compared to Q3.

Investment in home improvement was at a $238 billion Seasonally Adjusted Annual Rate (SAAR) in Q4 (about 1.2% of GDP).  Home improvement spending has been solid.

NMHC: Apartment Market Tightness Index remained negative for Ninth Consecutive Quarter

by Bill McBride on 1/29/2018 02:44:00 PM

From the National Multifamily Housing Council (NMHC): Apartment Markets Remain Soft in the January NMHC Quarterly Survey

Apartment market conditions continued to soften according to results from the January National Multifamily Housing Council’s (NMHC) Quarterly Survey of Apartment Market Conditions. The Market Tightness (36), Sales Volume (40) and Debt Financing (38) Indexes landed below the breakeven level of 50, while the Equity Financing Index increased to 58. In addition, the survey found that half of respondents expect green financing to increase in 2018.

“The latest survey results underscored the prevailing view at our recent Apartment Strategies Conference that we are late in the current cycle,” said NMHC Chief Economist Mark Obrinsky. “While some seasonality comes into play, the Market Tightness Index was a little below its long-term January average, indicating market conditions are slightly weaker than normal. Demand for apartments overall remains strong and equity capital still looks favorably on the apartment sector. However, many owners are satisfied with their holdings and more inclined to stand pat.”

The Market Tightness Index decreased one point to 36 – the ninth consecutive quarter of declining conditions. Just 14 percent reported tighter conditions compared to the previous three months, compared to 42 percent of senior executives who reported looser 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 ninth 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: House Price Index up 0.3% in November, Up 6.4% year-over-year

by Bill McBride on 1/29/2018 12:36:00 PM

Note: I follow several house price indexes (Case-Shiller, CoreLogic, Black Knight, Zillow, FHFA and more). Note: Black Knight uses the current month closings only (not a three month average like Case-Shiller or a weighted average like CoreLogic), excludes short sales and REOs, and is not seasonally adjusted.

From Black Knight: Black Knight HPI: Appreciation Remains Steady as U.S. Home Prices Gain 0.27 Percent in November, Up 6.44 Percent Year-Over-Year

• After 67 consecutive months of annual appreciation, U.S. home prices reached another new peak at $283K

• At the national level, home prices have now gained 6.49 percent growth since the start of 2017

• New York led all states in monthly appreciation with home prices there rising 1.36 percent from October
...
• Home prices fell in six of the nation’s 20 largest states; Wisconsin saw the largest decline at -0.37 percent

• Ten of the 20 largest states and 12 of the 40 largest metros hit new home price peaks in November
Once again, this index is Not seasonally adjusted, and seasonally declines in some states is expected (so don't read too much into any regional declines).  The year-over-year increase in this index has been about the same for the last year (close to 6% range).

Note also that house prices are above the bubble peak in nominal terms, but not in real terms (adjusted for inflation).  Case-Shiller for November will be released tomorrow.

Dallas Fed: Manufacturing Expansion Solid in January

by Bill McBride on 1/29/2018 10:37:00 AM

From the Dallas Fed: Texas Manufacturing Expansion Continues

Texas factory activity continued to expand in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained elevated but retreated to 16.8 after surging to an 11-year high in December.

Most other measures of manufacturing activity also pointed to somewhat slower growth in January after the rapid expansion seen in December. The new orders index moved down from 30.1 to 25.5, and the growth rate of orders index fell six points to 15.5. The capacity utilization index also stayed positive but declined, dropping 12 points to 14.5. Meanwhile, the shipments index rose six points to 27.1, indicating a pickup in growth.

Perceptions of broader business conditions remained highly positive in January. The general business activity index pushed up further to 33.4, its highest reading in more than 12 years. The company outlook index remained elevated but edged down to 27.8.

Labor market measures suggested a slight deceleration in employment growth and longer workweeks this month. The employment index came in at 15.2, down five points from December.
emphasis added
This was the last of the regional Fed surveys for January.

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

Based on these regional surveys, it seems likely the ISM manufacturing index will be strong again in January (to be released Thursday, Feb 1st).

Personal Income increased 0.4% in December, Spending increased 0.4%

by Bill McBride on 1/29/2018 08:47:00 AM

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

Personal income increased $58.7 billion (0.4 percent) in December according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $48.0 billion (0.3 percent) and personal consumption expenditures (PCE) increased $54.2 billion (0.4 percent).
...
Real PCE increased 0.3 percent. The PCE price index increased 0.1 percent. Excluding food and energy, the PCE price index increased 0.2 percent.
The December PCE price index increased 1.7 percent year-over-year and the December PCE price index, excluding food and energy, increased 1.5 percent year-over-year.

The following graph shows real Personal Consumption Expenditures (PCE) through December 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 slightly above expectations,  and the increase in PCE was slightly below expectations.

Sunday, January 28, 2018

Sunday Night Futures

by Bill McBride on 1/28/2018 07:14:00 PM

Weekend:
Schedule for Week of Jan 28, 2018

Monday:
• At 8:30 AM ET, Personal Income and Outlays for December. The consensus is for a 0.3% increase in personal income, and for a 0.5% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 10:30 AM, Dallas Fed Survey of Manufacturing Activity for January. This is the last of the regional surveys for January.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are up 2, and DOW futures are up 50 (fair value).

Oil prices were up over the last week with WTI futures at $66.24 per barrel and Brent at $60.47 per barrel.  A year ago, WTI was at $53, and Brent was at $55 - so oil prices are up solidly year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.57 per gallon. A year ago prices were at $2.27 per gallon - so gasoline prices are up 30 cents per gallon year-over-year.

Vehicle Forecast: Sales Expected to Exceed 17 million SAAR Again in January

by Bill McBride on 1/28/2018 11:06:00 AM

The automakers will report January vehicle sales on Thursday, Feb 1st.

Note: There are 25 selling days in January 2018, there were 24 selling days in January 2017.

From WardsAuto: U.S. Forecast: January Sets Stage for Anticipated Year-Over-Year Decline

The Wards Intelligence January forecast calls for 1.16 million LVs to be delivered over 25 selling days, resulting in a 46,430-unit daily sales rate compared with 47,442 in prior-year (24 days). The DSR is down 2.1% from like-2017.
...
The resulting seasonally adjusted annual rate is 17.24 million units, below the 17.75 million in the previous month and 17.34 million year-ago.
emphasis added
Sales had been below 17 million SAAR (Seasonally Adjusted Annual Rate) for six consecutive months last year, until September, when sales increased due to buying following Hurricane Harvey. If sales exceed 17 million SAAR in January, this will be the fifth consecutive month over 17 million SAAR. However, overall, it appears sales will be down again in 2018.

Here is a table of light vehicle sales since 2000. The record year for sales was 2016, followed by 2015, both breaking the previous record set in 2000. Last year, 2017, was the fourth best year ever, just ahead of 2001.

Light Vehicle Sales (000s)
YearSalesChange
200017,350
200117,122-1.3%
200216,816-1.8%
200316,639-1.1%
200416,8671.4%
200516,9480.5%
200616,504-2.6%
200716,089-2.5%
200813,195-18.0%
200910,402-21.2%
201011,55511.1%
201112,74210.3%
201214,43313.3%
201315,5307.6%
201416,4525.9%
201517,3965.7%
201617,4650.4%
201717,135-1.9%

Saturday, January 27, 2018

January 2018: Unofficial Problem Bank list declines to 101 Institutions

by Bill McBride on 1/27/2018 06:12:00 PM

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

Here is the unofficial problem bank list for January 2018.

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

Update on the Unofficial Problem Bank List for January 2018. The list had a net decline of two insured institutions to 101 banks. Likewise, aggregate assets had a small decline of $200 million to $20.7 billion. A year ago, the list held 163 institutions with assets of $43.5 billion.

Actions were terminated against First South Bank, Spartanburg, SC ($238 million) and Blue Grass Federal Savings and Loan Association, Paris, KY ($33 million). Heartland Bank, Little Rock, AR ($182 million) found their way off the list through a merger partner. Added this month was Jackson County Bank, Black River Falls, WI ($253 million).

Schedule for Week of Jan 28, 2018

by Bill McBride on 1/27/2018 08:09:00 AM

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

Other key indicators include the January ISM manufacturing index, January auto sales, and the Case-Shiller house price index.

Also the FOMC meets this week, and no change to policy is expected.

----- Monday, Jan 29th -----

8:30 AM: Personal Income and Outlays for December. The consensus is for a 0.3% increase in personal income, and for a 0.5% increase in personal spending. And for the Core PCE price index to increase 0.2%.

10:30 AM: Dallas Fed Survey of Manufacturing Activity for January. This is the last of the regional surveys for January.

----- Tuesday, Jan 30th-----

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

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

The consensus is for a 6.4% year-over-year increase in the Comp 20 index for November.

10:00 AM: the Q4 Housing Vacancies and Homeownership from the Census Bureau.

----- Wednesday, Jan 31st -----

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 January. This report is for private payrolls only (no government). The consensus is for 195,000 payroll jobs added in January, down from 250,000 added in December.

9:45 AM: Chicago Purchasing Managers Index for January. The consensus is for a reading of 64.0, down from 67.6 in December.

10:00 AM: Pending Home Sales Index for December. The consensus is for a 0.4% increase in the index.

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

----- Thursday, Feb 1st -----

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 235 thousand initial claims, up from 233 thousand the previous week.

ISM PMI10:00 AM: ISM Manufacturing Index for January. The consensus is for the ISM to be at 58.7, down from 59.7 in December.

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

The ISM manufacturing index indicated expansion in December. The PMI was at 59.7% in December, the employment index was at 57.0%, and the new orders index was at 69.4%.

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

Vehicle SalesAll day: Light vehicle sales for January. The consensus is for light vehicle sales to be 17.3 million SAAR in January, down from 17.8 million in December (Seasonally Adjusted Annual Rate).

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

----- Friday, Feb 2nd -----

8:30 AM: Employment Report for January. The consensus is for an increase of 176,000 non-farm payroll jobs added in January, up from the 148,000 non-farm payroll jobs added in December.

Year-over-year change employmentThe consensus is for the unemployment rate to be unchanged at 4.1%.

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

In December the year-over-year change was 2.055 million jobs.

A key will be the change in wages.

Note from the BLS: "Effective with the release of The Employment Situation for January 2018 on February 2, 2018, the establishment survey will introduce revisions to nonfarm payroll employment, hours, and earnings data to reflect the annual benchmark adjustment for March 2017 and updated seasonal adjustment factors. Not seasonally adjusted data beginning with April 2016 and seasonally adjusted data beginning with January 2013 are subject to revision. Consistent with standard practice, some historical data may be subject to revisions resulting from issues identified during the benchmark process."   The preliminary benchmark revision showed an increase of 95,000 jobs.

10:00 AM: University of Michigan's Consumer sentiment index (preliminary for February). The consensus is for a reading of 95.0, up from 94.4 in January.

Friday, January 26, 2018

Oil Rigs "US oil rigs were up sharply"

by Bill McBride on 1/26/2018 07:02:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on Jan 26, 2017:

• Total US oil rigs were up sharply, +12 to 759

• Horizontal oil rigs were similarly up, +9 to 662

• All of the gain comes from the Permian, up 18 rigs in total
...
• The oil price continues to rise, with WTI above $66, even as the Brent spread has fallen below $5.
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.

Philly Fed: State Coincident Indexes increased in 37 states in December

by Bill McBride on 1/26/2018 01:25:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for December 2017. Over the past three months, the indexes increased in 42 states and decreased in eight, for a three-month diffusion index of 68. In the past month, the indexes increased in 37 states, decreased in 10, and remained stable in three, for a one-month diffusion index of 54.
emphasis added
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 by production workers, 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 State Conincident MapClick on map for larger image.

Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and all or mostly green during most of the recent expansion.

Recently several states have turned red.

Source: Philly Fed.

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

Philly Fed Number of States with Increasing ActivityAnd here 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 December, 38 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 mid-to-late 2017 sharp decrease in the number of states with increasing activity is unclear.

Q4 GDP: Investment

by Bill McBride on 1/26/2018 11:11:00 AM

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) increased at a 11.6% annual rate in Q3.  Equipment investment increased at a 11.4% annual rate, and investment in non-residential structures increased at a 1.4% annual rate.

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

Recently RI has been soft, but picked up in Q4.

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

Residential InvestmentThe second graph shows residential investment as a percent of GDP.

Residential Investment as a percent of GDP increased in Q4, and 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 couple of years.

The increase is primarily coming from single family investment and the boom in home remodeling.

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.


BEA: Real GDP increased at 2.6% Annualized Rate in Q4

by Bill McBride on 1/26/2018 08:36:00 AM

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

Real gross domestic product (GDP) increased at an annual rate of 2.6 percent in the fourth quarter of 2017, according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.2 percent.
...
The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, residential fixed investment, state and local government spending, and federal government spending that were partly offset by a negative contribution from private inventory investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP growth in the fourth quarter reflected a downturn in private inventory investment that was partly offset by accelerations in PCE, exports, nonresidential fixed investment, state and local government spending, and federal government spending, and an upturn in residential fixed investment. Imports, which are a subtraction in the calculation of GDP, turned up.
emphasis added
The advance Q4 GDP report, with 2.6% annualized growth, was below expectations.

Personal consumption expenditures (PCE) increased at 3.8% annualized rate in Q4, up from 2.2% in Q3.   Residential investment (RI) increased at a 11.6% pace. Equipment investment increased at a 11.4% annualized rate, and investment in non-residential structures decreased at a 1.4% pace.

I'll have more later ...

Thursday, January 25, 2018

Friday: GDP, Durable Goods

by Bill McBride on 1/25/2018 08:22:00 PM

Friday:
• At 8:30 AM ET, Gross Domestic Product, 4th quarter 2017 (Advance estimate). The consensus is that real GDP increased 2.9% annualized in Q4, down from 3.2% in Q3.

• Also at 8:30 AM, Durable Goods Orders for November from the Census Bureau. The consensus is for a 0.8% increase in durable goods orders.

Q4 GDP Forecasts

by Bill McBride on 1/25/2018 05:13:00 PM

The advance estimate of Q4 GDP will be released tomorrow, Friday, January 26th. The consensus is that real GDP increased 2.9% annualized in Q4, down from 3.2% in Q3.

Here are a couple of estimates, from the Altanta Fed: GDPNow

The final GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2017 is 3.4 percent on January 25, unchanged from January 18.
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast stands at 3.9% for 2017:Q4 and 3.1% for 2018:Q1.
CR Note: It looks likely that GDP will be around or over 3% again in Q4.

A few Comments on December New Home Sales

by Bill McBride on 1/25/2018 12:34:00 PM

New home sales for December were reported at 625,000 on a seasonally adjusted annual rate basis (SAAR). This was well below the consensus forecast, and the three previous months were revised down significantly.

On an annual basis, sales were up 8.3% in 2017 compared to 2016.  This was a solid year-over-year gain. Here is a table of new home sales since the bubble peak in 2005.

New Home Sales (000s)
  New Home
Sales
Change
20051,283---
20061,051-18.1%
2007776-26.2%
2008485-37.5%
2009375-22.7%
2010323-13.9%
2011306-5.3%
201236820.3%
201342916.6%
20144371.9%
201550114.7%
201656112.0%
20176088.3%

Sales were up 14.1% year-over-year in December.

Earlier: New Home Sales decrease to 625,000 Annual Rate in December.

New Home Sales 2016 2017Click on graph for larger image.

This graph shows new home sales for 2016 and 2017 by month (Seasonally Adjusted Annual Rate).

For 2017, new home sales are up 8.3% compared to 2016.

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 December 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.

Kansas City Fed: Regional Manufacturing Activity "Growth Strengthened Further" in January

by Bill McBride on 1/25/2018 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Growth Strengthened Further

The Federal Reserve Bank of Kansas City released the January Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity strengthened further, and expectations for future activity increased.

“We saw faster growth this month despite some firms noting negative effects from extremely cold weather, and several price indexes rose considerably,” said Wilkerson.
...
The month-over-month composite index was 16 in January, higher than 13 in December and 15 in November. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Growth in factory activity improved at both durable and non-durable goods plants, particularly for machinery, aircraft, chemicals, and plastics. Most month-over-month indexes also increased. The shipments, new orders, and order backlog indexes all rose moderately. The employment index inched higher from 16 to 18, while the production index was unchanged. The raw materials inventory index climbed from 7 to 15, and the finished goods inventory index moved into positive territory.
emphasis added
So far all of the regional Fed surveys have been solid in January, although only the Kansas City index has been above the December levels (most indexes suggest slower growth in January than in December).

New Home Sales decrease to 625,000 Annual Rate in December

by Bill McBride on 1/25/2018 10:19:00 AM

The Census Bureau reports New Home Sales in December were at a seasonally adjusted annual rate (SAAR) of 625 thousand.

The previous three months combined were revised down significantly.

"Sales of new single-family houses in December 2017 were at a seasonally adjusted annual rate of 625,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 9.3 percent below the revised November rate of 689,000, but is 14.1 percent above the December 2016 estimate of 548,000.

An estimated 608,000 new homes were sold in 2017. This is 8.3 percent above the 2016 figure of 561,000.

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 December to 5.7 months from 4.9 months in November.

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 December was 295,000. This represents a supply of 5.7 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 December 2017 (red column), 43 thousand new homes were sold (NSA). Last year, 39 thousand homes were sold in December.

The all time high for December was 87 thousand in 2005, and the all time low for December was 23 thousand in 1966 and 2010.

This was well below expectations of 683,000 sales SAAR, and the previous months combined were revised down significantly. I'll have more later today.

Weekly Initial Unemployment Claims increase to 233,000

by Bill McBride on 1/25/2018 08:34:00 AM

The DOL reported:

In the week ending January 20, the advance figure for seasonally adjusted initial claims was 233,000, an increase of 17,000 from the previous week's revised level. The previous week's level was revised down by 4,000 from 220,000 to 216,000. The 4-week moving average was 240,000, a decrease of 3,500 from the previous week's revised average. The previous week's average was revised down by 1,000 from 244,500 to 243,500.

The claims taking procedures in Puerto Rico and in the Virgin Islands have still not returned to normal
emphasis added
The previous week was revised down.

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

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 240,000.

This was much lower than the consensus forecast. The low level of claims suggest relatively few layoffs.

Wednesday, January 24, 2018

Thursday: New Home Sales, Unemployment Claims

by Bill McBride on 1/24/2018 07:22:00 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 220 thousand the previous week.

• At 10:00 AM, New Home Sales for December from the Census Bureau. The consensus is for 683 thousand SAAR, down from 733 thousand in November.

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

Review: Here are the Ten Economic Questions for 2018 and a few predictions:

Question #1 for 2018: How much will the economy grow in 2018?
Question #2 for 2018: Will job creation slow further in 2018?
Question #3 for 2018: What will the unemployment rate be in December 2018?
Question #4 for 2018: Will the core inflation rate rise in 2018? Will too much inflation be a concern in 2018?
Question #5 for 2018: Will the Fed raise rates in 2018, and if so, by how much?
Question #6 for 2018: How much will wages increase in 2018?
Question #7 for 2018: How much will Residential Investment increase?
Question #8 for 2018: What will happen with house prices in 2018?
Question #9 for 2018: Will housing inventory increase or decrease in 2018?
Question #10 for 2018: Will the New Tax Law impact Home Sales, Inventory, and Price Growth in Certain States?

LA area Port Traffic Increases in December

by Bill McBride on 1/24/2018 03:40:00 PM

Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic.

From the Port of Long Beach: State of the Port Celebrates Cargo Record

The Port of Long Beach roared back from unprecedented challenges to notch its busiest year ever in 2017, moving 7.54 million twenty-foot equivalent units, an increase of more than 11 percent ...
The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

LA Area Port TrafficClick on graph for larger image.

On a rolling 12 month basis, inbound traffic was up 0.8% compared to the rolling 12 months ending in November.   Outbound traffic was up 0.1% compared to the rolling 12 months ending in November.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

LA Area Port TrafficUsually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March depending on the timing of the Chinese New Year.  

Trade has been strong - especially inbound - and setting record volumes most months recently.

In general imports have been increasing, and exports are mostly moving sideways to slightly down recently.

A Few Comments on December Existing Home Sales

by Bill McBride on 1/24/2018 11:24:00 AM

Earlier: NAR: "Existing-Home Sales Fade in December; 2017 Sales Up 1.1 Percent"

A few key points:

1) As usual, housing economist Tom Lawler's forecast was closer to the NAR report than the consensus.  See: Lawler: Early Read on Existing Home Sales in December. The consensus was for sales of 5.75 million SAAR in December.  Lawler estimated 5.66 million, and the NAR reported 5.57 million.

"Based on publicly-available state and local realtor/MLS reports from across the country released through today, I predict that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.66 million in December, down 2.6% from November’s preliminary pace"
2) Inventory is still very low and falling year-over-year (down 10.3% year-over-year in December). More inventory would probably mean smaller price increases, and less inventory somewhat larger price increases.    This was the 31st consecutive month with a year-over-year decline in inventory.

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

Existing Home Sales NSAClick on graph for larger image.

Sales NSA in December (427,000, red column) were below sales in December 2016 (437,000, NSA) and also below sales in December 2015 (436,000, NSA).

This is the lowest sales NSA since December 2014.

Sales NSA will be lower through February.

We will probably have to wait until March - at the earliest - to draw any conclusions about the impact of the new tax law on home sales.

NAR: "Existing-Home Sales Fade in December; 2017 Sales Up 1.1 Percent"

by Bill McBride on 1/24/2018 10:14:00 AM

From the NAR: Existing-Home Sales Fade in December; 2017 Sales Up 1.1 Percent

xisting-home sales subsided in most of the country in December, but 2017 as a whole edged up 1.1 percent and ended up being the best year for sales in 11 years, according to the National Association of Realtors®.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 1.1 percent in 2017 to a 5.51 million sales pace and surpassed 2016 (5.45 million) as the highest since 2006 (6.48 million).

In December, existing-home sales slipped 3.6 percent to a seasonally adjusted annual rate of 5.57 million from a downwardly revised 5.78 million in November. After last month’s decline, sales are still 1.1 percent above a year ago.
...
Total housing inventory at the end of December dropped 11.4 percent to 1.48 million existing homes available for sale, and is now 10.3 percent lower than a year ago (1.65 million) and has fallen year-over-year for 31 consecutive months. Unsold inventory is at a 3.2-month supply at the current sales pace, which is down from 3.6 months a year ago and is the lowest level since NAR began tracking in 1999.
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 December (5.57 million SAAR) were 3.6% higher than last month, and were 1.1% above the December 2016 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory decreased to 1.48 million in December from 1.67 million in November.   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 10.3% year-over-year in December compared to December 2016.  

Months of supply was at 3.2 months in December.

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

AIA: "Architecture billings end year on positive note"

by Bill McBride on 1/24/2018 09:19:00 AM

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

From the AIA: Architecture billings end year on positive note

The Architecture Billings Index (ABI) concluded the year in positive terrain, with the December reading capping off three straight months of growth in design billings. The American Institute of Architects (AIA) reported the December ABI score was 52.9, down from a score of 55.0 in the previous month. This score still reflects an increase in design services provided by U.S. architecture firms (any score above 50 indicates an increase in billings). The new projects inquiry index was 61.9, up from a reading of 61.1 the previous month, while the new design contracts index decreased slightly from 53.2 to 52.7.

“Overall, 2017 turned out to be a strong year for architecture firms. All but two months saw ABI scores in positive territory,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “Additionally, the overall strength of the fourth quarter lays a good foundation for healthy growth in construction activity in 2018.”
...
• Regional averages: South (56.3), West (53.0), Midwest (52.9), Northeast (49.4)

• Sector index breakdown: multi-family residential (55.4), commercial / industrial (54.8), institutional (51.2), mixed practice (50.4)
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 52.9 in December, down from 55.0 in November. 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 10 of the last 12 months, suggesting a further increase in CRE investment into 2018.

MBA: Mortgage Applications Increase in Latest Weekly Survey

by Bill McBride on 1/24/2018 07:00:00 AM

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

Mortgage applications increased 4.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 19, 2018. This week’s results included an adjustment for the MLK Day holiday.

... The Refinance Index increased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 6 percent from one week earlier to its highest level since April 2010. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 7 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to its highest level since March 2017, 4.36 percent, from 4.33 percent, with points remaining unchanged at 0.54 (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.

The weekly index is at the highest level since April 2010 (The 4-week average is still below the peak of last year).

According to the MBA, purchase activity is up 7% year-over-year.

Tuesday, January 23, 2018

Wednesday: Existing Home Sales

by Bill McBride on 1/23/2018 07:09:00 PM

From Matthew Graham at Mortgage News Daily: Small Reprieve For Recent Rate Spike

Mortgage rates finally managed to move lower in a small but meaningful way today--something they haven't done in more than 2 weeks! ... While it is indeed bigger than recent examples, many prospective borrowers will find it underwhelming. In isolated cases, it may get a loan quote down to the next .125% of a percent lower, but most quotes will simply have slightly lower upfront costs (while the rate itself remains unchanged). Looked at another way, we could say apart from yesterday, today's rates are the highest in more than 9 months. [30YR FIXED - 4.25%]
emphasis added
Wednesday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

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

• At 10:00 AM, Existing Home Sales for December from the National Association of Realtors (NAR). The consensus is for 5.75 million SAAR, down from 5.81 million in November. Housing economist Tom Lawler expects the NAR to report sales of 5.66 million SAAR for December.

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