Wednesday, February 28, 2018

Thursday: Unemployment Claims, Personal Income and Outlays, ISM Mfg, Construction Spending, Vehicle Sales, Fed Chair Powell

by Bill McBride on 2/28/2018 08:19:00 PM

Plenty of data on Thursday:
• At 8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 230 thousand initial claims, up from 222 thousand the previous week.

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

• At 10:00 AM, ISM Manufacturing Index for February. The consensus is for the ISM to be at 58.6, down from 59.1 in January. The ISM manufacturing index indicated expansion in December. The PMI was at 59.1% in January, the employment index was at 54.2%, and the new orders index was at 65.4%.

• Also at 10:00 AM, Construction Spending for January. The consensus is for a 0.3% increase in construction spending.

• Also at 10:00 AM, Fed Chair Jerome Powell Testimony, Semiannual Monetary Policy Report to the Congress, Before the Senate Banking Committee, Washington, D.C

• All day: Light vehicle sales for February. The consensus is for light vehicle sales to be 17.2 million SAAR in February, up from 17.1 million in January (Seasonally Adjusted Annual Rate).

Fannie Mae: Mortgage Serious Delinquency rate decreased slightly in January

by Bill McBride on 2/28/2018 04:10:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate decreased to 1.23% in January, down from 1.24% in December. The serious delinquency rate is up from 1.20% in January 2017.

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 (3% of portfolio), 3.31% are seriously delinquent. For loans made in 2005 through 2008 (6% of portfolio), 6.54% are seriously delinquent, For recent loans, originated in 2009 through 2017 (91% of portfolio), only 0.54% are seriously delinquent. So Fannie is still working through poor performing loans from the bubble years.

The recent increase in the delinquency rate was due to the hurricanes - no worries about the overall market (These are serious delinquencies, so it took 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.

Earlier: Chicago PMI Declines in February, Still Solid

by Bill McBride on 2/28/2018 12:22:00 PM

From the Chicago PMI: February Chicago Business Barometer Declines to 61.9

The MNI Chicago Business Barometer fell 3.8 points to 61.9 in February, down from 65.7 in January, to the lowest level since August 2017.

Business activity continued to expand in February, although at a softer pace than in January. All five of the Barometer components receded on the month, but despite a second straight monthly fall, the Barometer was still up 8% on last February and above the 2017 average of 60.8.
...
“Disruptive weather conditions this month and large promotions at the back-end of last year appear to have weighed on demand and output in February, but despite the Barometer’s broad-based decline activity remains upbeat,” said Jamie Satchi, Economist at MNI Indicators.

“That said, a large proportion of firms are anxious about the cost of input materials, and warn they could pass on these higher costs to consumers if inflationary pressures do not abate,” he added.
emphasis added
This was well below the consensus forecast of 65.0, but still a solid reading.

NAR: Pending Home Sales Index Decreased 4.7% in January, Down 3.8% Year-over-year

by Bill McBride on 2/28/2018 10:06:00 AM

From the NAR: Pending Home Sales Stumble 4.7 Percent in January

After seeing a modest three-month rise in activity, pending home sales cooled considerably in January to their lowest level in over three years, according to the National Association of Realtors®. All major regions experienced monthly and annual declines in contract signings last month.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 4.7 percent to 104.6 in January from a downwardly revised 109.8 in December 2017. After last month’s retreat, the index is now 3.8 percent below a year ago and at its lowest level since October 2014 (104.1).
...
The PHSI in the Northeast dropped 9.0 percent to 87.0 in January, and is now 12.1 percent below a year ago. In the Midwest the index fell 6.6 percent to 98.2 in January, and is now 4.1 percent lower than January 2017.

Pending home sales in the South declined 3.9 percent to an index of 121.9 in January, and are now 1.1 percent lower than last January. The index in the West decreased 1.2 percent in January to 97.9, and is 2.5 percent below a year ago.
emphasis added
This was well below expectations of a 0.5% increase for this index. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in February and March.

Q4 GDP Revised down to 2.5% Annual Rate

by Bill McBride on 2/28/2018 08:34:00 AM

From the BEA: Gross Domestic Product: Fourth Quarter and Annual 2017 (Second Estimate)

Real gross domestic product (GDP) increased at an annual rate of 2.5 percent in the fourth quarter of 2017, according to the "second" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.2 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.6 percent. With this second estimate for the fourth quarter, the general picture of economic growth remains the same.
emphasis added
Here is a Comparison of Second and Advance Estimates. PCE growth was unrevised at 3.8%. Residential investment was revised up from 11.6% to 13.0%. Most revisions were small. This was at the consensus forecast.

MBA: Mortgage Applications Increase in Latest Weekly Survey

by Bill McBride on 2/28/2018 07:00:00 AM

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

Mortgage applications increased 2.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 23, 2018. This week’s results include an adjustment for the Washington's Birthday (Presidents’ Day) holiday.

... The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 6 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 3 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) remained unchanged from last week at 4.64 percent, with points increasing to 0.63 from 0.61 (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 50 bps or more from the recent level.



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

According to the MBA, purchase activity is up 3% year-over-year.

Tuesday, February 27, 2018

Wednesday: GDP, Pending Home Sales, Chicago PMI

by Bill McBride on 2/27/2018 07:35:00 PM

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

• At 8:30 AM, Gross Domestic Product, 4th quarter 2017 (Second estimate). The consensus is that real GDP increased 2.5% annualized in Q4, down from the advance estimate of 2.6%.

• 9:45 AM: Chicago Purchasing Managers Index for February. The consensus is for a reading of 65.0, down from 65.7 in January.

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

Freddie Mac: Mortgage Serious Delinquency Rate Decreased Slightly in January

by Bill McBride on 2/27/2018 04:47:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in January was 1.07%, down from 1.08% in December. Freddie's rate is up from 0.99% in January 2017.

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

The recent increase in the delinquency rate was due to the hurricanes - no worries about the overall market (These are serious delinquencies, so it took 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 January soon.

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

by Bill McBride on 2/27/2018 03:20:00 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.

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

by Bill McBride on 2/27/2018 12:50:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 6.3% year-over-year in December

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 7.0% above the previous bubble peak. However, in real terms, the National index (SA) is still about 11.1% 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 December, the index was up 6.3% 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 December) 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 March 2006 levels (and will probably be at a new high soon).



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 November 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 2000 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to January 2004 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 late 2003, early 2004 - and the price-to-rent ratio has been increasing slowly.

Richmond Fed: District Manufacturing Firms Reported Robust Growth in February

by Bill McBride on 2/27/2018 11:14:00 AM

From the Richmond Fed: Fifth District Manufacturing Firms Reported Robust Growth in February

Fifth District manufacturing firms saw robust growth in February, according to the results from the latest survey by the Federal Reserve Bank of Richmond. The composite manufacturing index jumped from 14 in January to 28 in February, the second highest value on record, driven by increases in shipments, orders, and employment. The wages index remained in positive territory at 23, while the available skills metric dropped from −10 in January to −17 in February. Despite greater difficulty finding skilled workers, District manufacturing firms saw strong growth in employment and the average workweek in February. Survey results show that manufacturers expect to see continued growth in the coming months.

Manufacturing firms saw growth accelerate for both prices paid and prices received, with each increasing at the highest rate since April 2017. Firms expect prices to continue to grow at a faster rate in the near future.
emphasis added
This was the last of the regional Fed surveys for February.

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

Based on these regional surveys, it seems likely the ISM manufacturing index will be strong again in February (to be released Thursday, Mar 1st). The consensus is for the ISM to be at 58.6, down from 59.1 in January.

Powell: Semiannual Monetary Policy Report to the Congress

by Bill McBride on 2/27/2018 09:51:00 AM

Excerpts from prepared statement from Fed Chair Jerome Powell: Semiannual Monetary Policy Report to the Congress

After easing substantially during 2017, financial conditions in the United States have reversed some of that easing. At this point, we do not see these developments as weighing heavily on the outlook for economic activity, the labor market, and inflation. Indeed, the economic outlook remains strong. The robust job market should continue to support growth in household incomes and consumer spending, solid economic growth among our trading partners should lead to further gains in U.S. exports, and upbeat business sentiment and strong sales growth will likely continue to boost business investment. Moreover, fiscal policy is becoming more stimulative. In this environment, we anticipate that inflation on a 12-month basis will move up this year and stabilize around the FOMC's 2 percent objective over the medium term. Wages should increase at a faster pace as well. The Committee views the near-term risks to the economic outlook as roughly balanced but will continue to monitor inflation developments closely.
emphasis added
And on the balance sheet:
The Congress has assigned us the goals of promoting maximum employment and stable prices. Over the second half of 2017, the FOMC continued to gradually reduce monetary policy accommodation. Specifically, we raised the target range for the federal funds rate by 1/4 percentage point at our December meeting, bringing the target to a range of 1-1/4 to 1-1/2 percent. In addition, in October we initiated a balance sheet normalization program to gradually reduce the Federal Reserve's securities holdings. That program has been proceeding smoothly. These interest rate and balance sheet actions reflect the Committee's view that gradually reducing monetary policy accommodation will sustain a strong labor market while fostering a return of inflation to 2 percent.

Case-Shiller: National House Price Index increased 6.3% year-over-year in December

by Bill McBride on 2/27/2018 09:16:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for December ("December" is a 3 month average of October, November and December 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: S&P CoreLogic Case-Shiller National Home Price Index Shows Home Prices End the Year 6.3% Higher than 2016

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 6.3% annual gain in December, up from 6.1% in the previous month. The 10-City Composite annual increase came in at 6.0%, no change from the previous month. The 20-City Composite posted a 6.3% year-over-year gain, down from 6.4% in the previous month.

Seattle, Las Vegas, and San Francisco reported the highest year-over-year gains among the 20 cities. In December, Seattle led the way with a 12.7% year-over-year price increase, followed by Las Vegas with an 11.1% increase, and San Francisco with a 9.2% increase. Nine cities reported greater price increases in the year ending December 2017 versus the year ending November 2017
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.2% in December. The 10-City and 20-City Composites both reported increases of 0.2%. After seasonal adjustment, the National Index recorded a 0.7% month-over-month increase in December. The 10-City and 20-City Composites both posted 0.6% month-over-month increases. Twelve of the 20 cities reported increases in December before seasonal adjustment, while all 20 cities reported increases after seasonal adjustment.

“The rise in home prices should be causing the same nervous wonder aimed at the stock market after its recent bout of volatility,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Across the 20 cities covered by S&P Corelogic Case Shiller Home Price Indices, the average increase from the financial crisis low is 62%; over the same period, inflation was 12.4%. None of the cities covered in this release saw real, inflation-adjusted prices fall in 2017. The National Index, which reached its low point in 2012, is up 38% in six years after adjusting for inflation, a real annual gain of 5.3%. The National Index’s average annual real gain from 1976 to 2017 was 1.3%. Even considering the recovery from the financial crisis, we are experiencing a boom in home prices.

“Within the last few months, there are beginning to be some signs that gains in housing may be leveling off. Sales of existing homes fell in December and January after seasonal adjustment and are now as low as any month in 2017. Pending sales of existing homes are roughly flat over the last several months. New home sales appear to be following the same trend as existing home sales. While the price increases do not suggest any weakening of demand, mortgage rates rose from 4% to 4.4% since the start of the year. It is too early to tell if the housing recovery is slowing. If it is, some moderation in price gains could be seen later this year.”
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 3.1% from the peak, and up 0.6% in December (SA).

The Composite 20 index is off slightly from the peak, and up 0.6% (SA) in December.

The National index is 7.0% above the bubble peak (SA), and up 0.7% (SA) in December.  The National index is up 44.7% 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 6.0% compared to December 2016.  The Composite 20 SA is up 6.3% year-over-year.

The National index SA is up 6.3% 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, February 26, 2018

Tuesday: Case-Shiller, Fed Chair Powell

by Bill McBride on 2/26/2018 07:23:00 PM

From Matthew Graham at Mortgage News Daily: Another 2018 First For Mortgage Rates

Mortgage rates fell for the third day in a row--the first time that's happened so far in 2018! Much like last week was slightly less spectacular than its "best in 2018" designation, today also comes with caveats. Even though rates technically did fall for the third straight day, most of the day was spent with underlying bond markets moving into weaker territory. This resulted in several lenders raising rates in the middle of the day, leaving them roughly in line with Friday's latest offerings. [30YR FIXED - 4.625%]
emphasis added
Tuesday:
• At 8:30 AM ET, Durable Goods Orders for January from the Census Bureau. The consensus is for a 0.2% decrease in durable goods orders.

• At 9:00 AM, S&P/Case-Shiller House Price Index for December. The consensus is for a 6.3% year-over-year increase in the Comp 20 index for December.

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

• At 10:00 AM, Fed Chair Jerome Powell Testimony, Semiannual Monetary Policy Report to the Congress, Before the House Financial Services Committee, Washington, D.C.

• At 10:00 AM, Richmond Fed Survey of Manufacturing Activity for February. This is the last of the regional surveys for February.

Housing Inventory Tracking

by Bill McBride on 2/26/2018 04:05:00 PM

Update: Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases. 

I don't have a crystal ball, but watching inventory helps understand the housing market.

The graph below shows the year-over-year change for non-contingent inventory in Las Vegas through January 2018, Phoenix and Sacramento, and also total existing home inventory as reported by the NAR (through January 2018).

Click on graph for larger image.

This shows the year-over-year change in inventory for Phoenix, Sacramento, and Las Vegas.  The black line if the year-over-year change in inventory as reported by the NAR.

Note that inventory is Sacramento was up 15% year-over-year in January (still very low), and has increased year-over-year for four consecutive months.  However inventory is down Nationally, and down in Phoenix and Las Vegas.

I'll try to add a few other markets.

Inventory is a key for the housing market, and I will be watching inventory for the impact of the new tax law and higher mortgage rates on housing.

A few Comments on January New Home Sales

by Bill McBride on 2/26/2018 01:25:00 PM

New home sales for January were reported at 593,000 on a seasonally adjusted annual rate basis (SAAR). This was below the consensus forecast, however the three previous months were revised up.

I wouldn't read too much into one month of sales, especially in January. January is usually one of the weakest months of the year for new home sales, on a not seasonally adjusted (NSA) basis - and poor weather this year might have impacted sales a little more than usual. I'd like to see data for February and March before blaming higher interest rates, or a negative impact from the new tax law, as the cause of slower sales.

Earlier: New Home Sales decrease to 593,000 Annual Rate in January.

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

This graph shows new home sales for 2017 and 2018 by month (Seasonally Adjusted Annual Rate).

Sales were down 1% year-over-year in January. No worries - yet!

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 January 2018. 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.

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.

Black Knight: House Price Index up 0.1% in December, Up 6.6% year-over-year

by Bill McBride on 2/26/2018 11:46:00 AM

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: U.S. Home Prices Ended 2017 Up 6.62 Percent from Start of Year, Gaining 0.1 Percent in December

• U.S. home prices edged up slightly in December, closing the year 6.6 percent above end of 2016

• December marked 68 consecutive months of annual home price appreciation

• New York once again led all states in monthly gains, with home prices up 1.71 percent over last month
...
• Home prices fell in nine of the nation’s 20 largest states, while six others hit new peaks

• Likewise, while 11 of the 40 largest metros hit new home price peaks in December, prices fell in another 20
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 December will be released tomorrow.

New Home Sales decrease to 593,000 Annual Rate in January

by Bill McBride on 2/26/2018 10:12:00 AM

The Census Bureau reports New Home Sales in January were at a seasonally adjusted annual rate (SAAR) of 593 thousand.

The previous three months were revised up.

"Sales of new single-family houses in January 2018 were at a seasonally adjusted annual rate of 593,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 7.8 percent below the revised December rate of 643,000 and is 1.0 percent below the January 2017 estimate of 599,000."
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 January to 6.1 months from 5.5 months in December.

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

This is at the top end of the normal range (less than 6 months supply is normal).
"The seasonally-adjusted estimate of new houses for sale at the end of January was 301,000. This represents a supply of 6.1 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 January 2018 (red column), 43 thousand new homes were sold (NSA). Last year, 45 thousand homes were sold in January.

The all time high for December was 92 thousand in 2005, and the all time low for December was 21 thousand in 2011.

This was below expectations of 600,000 sales SAAR, however the previous months combined were revised up. I'll have more later today.

Chicago Fed "Index Points to Little Change in Economic Growth in January"

by Bill McBride on 2/26/2018 08:38:00 AM

From the Chicago Fed: Index Points to Little Change in Economic Growth in January

The Chicago Fed National Activity Index (CFNAI) ticked down to +0.12 in January from +0.14 in December.
emphasis added
This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

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

This suggests economic activity was above the historical trend in January (using the three-month average).

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

Sunday, February 25, 2018

Monday: New Home Sales

by Bill McBride on 2/25/2018 06:23:00 PM

Weekend:
Schedule for Week of Feb 25, 2018

Monday:
• 8:30 AM ET, Chicago Fed National Activity Index for January. This is a composite index of other data.

• 10:00 AM, New Home Sales for January from the Census Bureau. The consensus is for 600 thousand SAAR, down from 625 thousand in December.

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

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are up 5, and DOW futures are up 74 (fair value).

Oil prices were up over the last week with WTI futures at $63.57 per barrel and Brent at $67.27 per barrel.  A year ago, WTI was at $54, 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 $2.51 per gallon. A year ago prices were at $2.29 per gallon - so gasoline prices are up 22 cents per gallon year-over-year.

February 2018: Unofficial Problem Bank list unchanged at 101 Institutions

by Bill McBride on 2/25/2018 10:40:00 AM

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

Here is the unofficial problem bank list for February 2018.

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

Update on the Unofficial Problem Bank List for February 2018. The list had no removals or additions during the month, so the number of insured institutions on it remains at 101. However, aggregate assets had a small decline of $224 million to $20.5 billion as assets were updated with year-end figures. A year ago, the list held 155 institutions with assets of $41.8 billion. The FDIC will release industry results for the fourth quarter and provide an update on the Official Problem Bank list on February 27th.

Saturday, February 24, 2018

Schedule for Week of Feb 25, 2018

by Bill McBride on 2/24/2018 08:11:00 AM

The key economic reports this week are the second estimate of Q4 GDP, January new home sales, February auto sales, and the December Case-Shiller house price index.

For manufacturing, the February ISM manufacturing index, and the February Richmond Fed and Dallas Fed manufacturing surveys will be released this week.

Also, the new Fed Chair, Jerome Powell, will deliver the Semiannual Monetary Policy Report to the Congress.

----- Monday, Feb 26th -----

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

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

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

The consensus is for 600 thousand SAAR, down from 625 thousand in December.

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

----- Tuesday, Feb 27th -----

8:30 ET AM: Durable Goods Orders for January from the Census Bureau. The consensus is for a 0.2% decrease in durable goods orders.

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

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 6.3% year-over-year increase in the Comp 20 index for December.

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

10:00 AM: Fed Chair Jerome Powell Testimony, Semiannual Monetary Policy Report to the Congress, Before the House Financial Services Committee, Washington, D.C.

10:00 AM ET: Richmond Fed Survey of Manufacturing Activity for February. This is the last of the regional surveys for February.

----- Wednesday, Feb 28th -----

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

8:30 AM: Gross Domestic Product, 4th quarter 2017 (Second estimate). The consensus is that real GDP increased 2.5% annualized in Q4, down from the advance estimate of 2.6%.

9:45 AM: Chicago Purchasing Managers Index for February. The consensus is for a reading of 65.0, down from 65.7 in January.

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

----- Thursday, Mar 1st -----

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 230 thousand initial claims, up from 222 thousand the previous week.

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

ISM PMI10:00 AM: ISM Manufacturing Index for February. The consensus is for the ISM to be at 58.6, down from 59.1 in January.

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

The ISM manufacturing index indicated expansion in December. The PMI was at 59.1% in January, the employment index was at 54.2%, and the new orders index was at 65.4%.

10:00 AM: Construction Spending for January. The consensus is for a 0.3% increase in construction spending.

10:00 AM: Fed Chair Jerome Powell Testimony, Semiannual Monetary Policy Report to the Congress, Before the Senate Banking Committee, Washington, D.C

Vehicle SalesAll day: Light vehicle sales for February. The consensus is for light vehicle sales to be 17.2 million SAAR in February, up from 17.1 million in January (Seasonally Adjusted Annual Rate).

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

----- Friday, Mar 2nd -----

10:00 AM: University of Michigan's Consumer sentiment index (preliminary for February). The consensus is for a reading of 99.5, down from 99.9 in January.

Friday, February 23, 2018

Oil Rigs "Oil rig counts take a breather"

by Bill McBride on 2/23/2018 07:05:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on Feb 23, 2018:

• Total US oil rigs took an anticipated breather this week, +1 to 799

• Horizontal oil rigs were up, +1 to 697
...
• The oil price continues to recover

• If rig count additions continue on our forecast trajectory, expect this to weigh on sentiment during March, particularly if supply gains surprise to the upside
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.

Lawler: "Census: Population Growth Slowed Slightly in 2017: Immigration Uncertainty Clouds Outlook"

by Bill McBride on 2/23/2018 03:58:00 PM

From housing economist Tom Lawler: Census: Population Growth Slowed Slightly in 2017: Immigration Uncertainty Clouds Outlook

At the end of last year the Census Bureau released its estimate of the US population for July 1, 2017 and its updated estimates for previous years (the so-called “Vintage 2017” estimates). As of July 1, 2017 Census estimated that the US resident population totaled 325,719,178, up 2,313,062 (or 0.71%) from the upwardly-revised estimate for July 1, 2016. The estimated population increase for 2017 was slightly lower than the 2,366,096 estimated gain in 2016, reflecting slightly lower estimated births, slightly higher estimated deaths, and slightly lower net international migration. Revised population estimates for previous years mainly reflected revised estimates of net international migration, which were driven by an updated methodology for estimating foreign-born emigration and net native-born migration. Below is a table comparing Vintage 2017 population estimates compared to the Vintage 2015 and the Vintage 2016 estimates. The Vintage “estimates” for the subsequent year reflect near-term projections for each Vintage.

Estimated US Resident Population
Vintage 2015Vintage 2016Vintage 2017
7/1/2010309,346,863309,348,193309,339,421
7/1/2011311,718,857311,663,358311,644,280
7/1/2012314,102,623313,998,379313,993,272
7/1/2013316,427,395316,204,908316,234,505
7/1/2014318,907,401318,563,456318,622,525
7/1/2015321,418,820320,896,618321,039,839
7/1/2016323,889,854323,127,513323,405,935
7/1/2017325,344,115325,719,178
7/1/2018328,033,240

While Census had originally planned to release updated long-term population projections in December (the last long-term population projections report was released at the end of 2014 with “Vintage 2013” as a starting point), “senior officials” delayed the updated population release until sometime in March. Many analysts use these population projections to project such things as labor force growth, household growth, etc. Unfortunately, the Census population projections from 2014 are woefully out of date. Amazingly, however, some analysts still use these old projections. E.g., in October of last year the Bureau of Labor Statistics produced updated labor force projections over the next decade based on the outdated Census population projections. Since, as discussed later, the Census 2014 population projections significantly overstated not just actual population growth but likely population growth over the next few years, projection of key economic variables based on these outdated population forecasts are of little use to anyone.

Below is a table showing the US resident population projections from the Census 2014 projections compared to the Vintage 2017 estimates.

Vintage 2017Census 2014 ProjectionsDifference
7/1/2014318,622,525318,748,017-125,492
7/1/2015321,039,839321,368,864-329,025
7/1/2016323,405,935323,995,528-589,593
7/1/2017325,719,178326,625,791-906,613
7/1/2018328,033,240329,256,465-1,223,225

As the table indicates, the Census 2014 population projection for 2017 were 906,613 higher than the latest 2017 estimate, and the projection for 2018 was 1,223,225 above the latest short-term forecast.

For 2017, here is a breakdown of the 2014 projections’ “component of change” assumptions for 2014 through 2017 compared to the Vintage 2017’s estimates.

Cumulative Components of Change from 7/1/2013 to 7/1/2017
Vintage 2017Census 2014 ProjectionsDifference
Births15,864,28516,050,287-186,002
Deaths10,755,02810,532,454222,574
Net International Migration4,375,4164,979,119-603,703
Components of Change9,484,67310,496,952-1,012,279
7/1/2013 Starting Point316,234,505316,128,839105,666
7/1/2017 Population325,719,178326,625,791-906,613

As the table indicates, over the 2014 through 2017 period births were lower, deaths were higher, and net international migration was significantly lower (according to the latest estimates) than the assumptions made in the Census 2014 population projections.

While Census has not yet released the Vintage 2017 population estimates by detailed age (these estimates probably won’t be available until June), the 7/1/2017 estimate of the US resident “adult” (18+) population is 252,063,800, or 778,438 below the projection for that date from the Census 2014 population projection report.

For the 2014 to 2017 period (using “actual” labor force participation rates), US labor force growth was about 0.1% per year lower than would have been the case if the Census 2014 population projections had been accurate. Over than same period my “best guess” is that US household growth over than period was about 118,000 lower than would have been the case if the Census 2014 population projections had been accurate. I use the term “best guess” because there are no reliable estimates of the number of US households for that period. (The so-called “household estimate conundrum.”)

The gap between Census 2014 population projections and likely “actual” population counts will almost certainly widen over the next few years, partly because of higher death rates but mainly because the Census 2014 assumptions on net international migration over the next few years seem way too high given the current political climate. As the chart below shows, the Census 2014 population projections assumed that net international immigration would be substantially higher over the 2018-2020 period than was the case over the past several years. Given the current political climate, such an assumption seems very unrealistic.

Net MigrationClick on graph for larger image.


On the immigration assumption front, my “gut” tells me that a major reason Census officials delayed the release of new long-term population projections is that it is far from clear how to assess what immigration numbers are likely to look like under an Administration that has expressed its support for legislation that would sharply reduce immigration. It also is a sensitive political topic, and it seems doubtful that Census officials would want to put out “official” government projections that showed rising net immigration numbers. I’m guessing that when Census finally releases its updated population projections, it will show different immigration scenarios, as they did in the 2012 population projection release, but I also believe that its “base’ or “middle net international migration scenario will show considerable lower numbers than those in the 2014 projections.

For analysts wishing to make economic projections that are dependent on population projections, there a few choices: (1) forego making any projections until Census releases its updated population forecasts, which is tentatively scheduled for release sometime next month; (2) make their own population projections based on their own assumptions about births, deaths, and (especially) net international migration; or (3) (NOT RECOMMENDED) continue the use the outdated Census 2014 population projections because, well, er, they are the last officially released projections!

When the Census’ new long-term population projections are released (again, probably next month), there are a few things analysts should take into account before using them as inputs to other economic/demographic variables. First, of course, analysts should look closely at the underlying assumptions in the projections, and make an assessment of whether they are “reasonable” (with special attention to the assumptions on net international migration). Second, it is highly likely that the “starting point” for Census’ updated population projections will be the “Vintage 2016” population estimate for July 1, 2016. As noted in the table on page one, the population estimate for this date was revised upward at the end of last year by 278,782. As such, rigorous analysts will need to adjust the Census projections to reflect these updated estimates, and may also want to adjust the Census projections to reflect their own views of the key components of change (again, especially with respect to net international migration).

Net, of course, the updated long-term Census population projections released (probably) next month are likely to show SUBSTANTIALLY slower projected population growth than the Census 2014 projections, and folks who only use “official” Census population projections to forecast such things as labor force growth and household formations will show substantially slower growth in these variables from their previous forecasts.

House Prices: NAR Median Prices vs Case-Shiller Index

by Bill McBride on 2/23/2018 12:05:00 PM

During the housing bubble and subsequent bust, I noted that the median house price could be distorted by the mix of houses sold. I preferred to use the repeat sales indexes from the FHFA, Case-Shiller and Corelogic (and others).

Now that most of the distortion from the bubble is behind us, I thought I'd take a look at the median (and mean) house price data for existing home sales from the NAR, compared to the Case-Shiller National index.

The first graph show the NAR existing home sales median and mean prices since 1999 (Not Seasonally Adjusted), compared to Case-Shiller (Seasonally Adjusted).

House Prices: NAR Median and Case-ShillerClick on graph for larger image.

The median and mean house prices showed less of an increase in prices during the bubble (this was the distortion I discussed back in 2005 and 2006).

Now it appears the median and mean prices are pretty much tracking the Case-Shiller index.

The second graph show the same data on a year-over-year basis.

House Prices: NAR Median and Case-Shiller year-over-yearOn a year-over-year basis, the mean and median track Case-Shiller pretty closely.

The Case-Shiller National Index was up 6.2% in November.

The NAR median price was up 5.8% in January, and the mean price was up 4.7%.

I still prefer the repeat sales indexes, but I think the NAR prices are also useful.

The third graph shows the NAR existing home median prices, the Census Bureau's new home median prices, and the Case-Shiller national index.

House Prices: New and Existing Median and Case-ShillerAs has been widely reported, the new home builders have been focused on higher priced homes - and this is clear in the house price data.

Compared to the bubble peak, the NAR median price is up 4.4%, the Case-Shiller index is up 6.4%, however new home median prices are up 27.5%!

Black Knight: National Mortgage Delinquency Rate decreased in January

by Bill McBride on 2/23/2018 08:30:00 AM

From Black Knight: Black Knight’s First Look: Mortgage Delinquencies Decline Sharply in January; Hurricanes’ Lingering Impact on Performance Continues

• Calendar-driven effects and fewer hurricane-related delinquencies resulted in a 210,000-loan decline in the number of past-due mortgages

• Despite an 8.6 percent monthly decline, delinquencies remain 1.3 percent above last year’s levels

• 146,000 loans remain delinquent as a result of Hurricanes Harvey and Irma, 132,000 of which are seriously delinquent (90 or more days past due)

• An early look at January data on the mortgage market in Puerto Rico shows an additional 57,000 loans still delinquent as a result of Hurricane Maria, with 49,000 seriously delinquent

• The population of loans in active foreclosure rose 6,000 month-over-month, marking only the second monthly rise in more than five years
According to Black Knight's First Look report for January, the percent of loans delinquent decreased 8.6% in January compared to December, and increased 1.3% year-over-year.

The percent of loans in the foreclosure process increased 1.8% in January and were down 30% 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 4.31% in January, down from 4.71% in December.

The percent of loans in the foreclosure process increased slightly in January to 0.66%.

The number of delinquent properties, but not in foreclosure, is up 40,000 properties year-over-year, and the number of properties in the foreclosure process is down 144,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  Jan
2018
Dec
2017
Jan
2017
Jan
2016
Delinquent4.31%4.71%4.25%5.09%
In Foreclosure0.66%0.65%0.94%1.30%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:2,202,0002,412,0002,162,0002,575,000
Number of properties in foreclosure pre-sale inventory:337,000331,000481,000659,000
Total Properties2,539,0002,743,0002,643,0003,234,000

Thursday, February 22, 2018

Duy's Fed Watch: "Fedspeak Reiterates Gradual Path"

by Bill McBride on 2/22/2018 06:20:00 PM

From Professor Tim Duy at Fed Watch: Fedspeak Reiterates Gradual Path

Fed speakers continue to reiterate that policy remains on a gradual path of tightening. So far, the inflation data and brightening economy has more emboldened their commitment to gradual rate hikes than a faster pace of hikes. What about fiscal policy? That train has left the station, but central bankers don’t seem too concerned – yet.
...
If the Fed wants to see what happens if you run the economy hot, best to give it a try in a low inflation, well-anchored inflation expectations environment. If the economy overheats and sends inflation to 3 percent, it wouldn’t be something the Fed couldn’t control. I am willing to endorse that experiment.
...
Bottom Line: Fed speakers continue to show no urgency to accelerate the pace of rate hikes despite firming inflation data and budget-busting fiscal stimulus. Also, keep an eye out for the possibility that Trump’s appointees reveal themselves to be doves in hawks’ clothing.

Hotels: Solid Start for Occupancy Rate in 2018

by Bill McBride on 2/22/2018 01:52:00 PM

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

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 11-17 February 2018, according to data from STR.

In comparison with the week of 12-18 February 2017, the industry recorded the following:

Occupancy: +1.2% to 62.9%
• Average daily rate (ADR): +3.2% to US$128.75
• Revenue per available room (RevPAR): +4.4% to US$80.99
emphasis added
Note: Houston is no longer reporting a large year-over-year increase in occupancy, so it appears the impact of the hurricanes is fading.

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.

Hotel Occupancy RateClick on graph for larger image.

The red line is for 2018, dash light blue is 2017 (record year due to hurricanes), blue is the median, and black is for 2009 (the worst year since the Great Depression for hotels).

Currently the occupancy rate is second overall, to date (just behind 2006) - and ahead of the record year in 2017 (2017 finished strong due to the impact of the hurricanes).

Data Source: STR, Courtesy of HotelNewsNow.com

Kansas City Fed: Regional Manufacturing Activity "Continued Solid Growth" in February

by Bill McBride on 2/22/2018 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Posted Continued Solid Growth

The Federal Reserve Bank of Kansas City released the February Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that the Tenth District manufacturing survey posted continued solid growth, and expectations for future activity increased moderately.

“February was another good month for factories in our region,” said Wilkerson. “A rising number of firms reported higher input and selling prices.”
...
The month-over-month composite index was 17 in February, higher than 16 in January and 13 in December (Tables 1 & 2, Chart 1). The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Factory activity grew at both durable and non-durable goods plants, particularly for metals, machinery, and plastics products. Most month-over-month indexes also increased. The shipments, new orders, and employment indexes all rose moderately. The order backlog index fell from 20 to 13, and the new orders for exports index also eased somewhat. The raw materials inventory index decreased from 15 to 8, while the finished goods inventory index was basically unchanged.

Most year-over-year factory indexes were higher in February. The composite index rose from 35 to 38, and the production, shipments, new orders, and order backlog indexes also increased. The employment index climbed from 31 to 39, and the capital expenditures index inched slightly higher. The raw materials inventory index fell from 38 to 23, while the finished goods inventory index increased slightly.
emphasis added
So far all of the regional Fed surveys have been solid in February, and most have been above the January levels (most indexes suggest faster growth in February than in January).

Weekly Initial Unemployment Claims decrease to 222,000

by Bill McBride on 2/22/2018 08:33:00 AM

The DOL reported:

In the week ending February 17, the advance figure for seasonally adjusted initial claims was 222,000, a decrease of 7,000 from the previous week's revised level. The previous week's level was revised down by 1,000 from 230,000 to 229,000. The 4-week moving average was 226,000, a decrease of 2,250 from the previous week's revised average. The previous week's average was revised down by 250 from 228,500 to 228,250.

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 226,000.

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

Wednesday, February 21, 2018

Thursday: Unemployment Claims

by Bill McBride on 2/21/2018 08:18:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Hit New 4-Year Highs

Mortgage rates continued higher today following the release of the Minutes from the Federal Reserve's (aka "The Fed") most recent policy meeting. The Fed was slightly more upbeat than markets expected, saying that most members agreed that a stronger economy increased the likelihood of further rate hikes. ... Unfortunately, today that meant rates moved to their highest levels in more than 4 years. For what it's worth, today's rates are only microscopically higher than last week's highs. [30YR FIXED - 4.625%]
emphasis added
Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 229 thousand initial claims, up from 221 thousand the previous week.

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

House Prices and Inventory

by Bill McBride on 2/21/2018 04:57:00 PM

This will be an interesting year for housing. With the tax changes - and rising mortgage rates - a key question is: What will be the impact on housing?

The answer is no one knows for sure. For the possible impact of tax changes on housing, see: Question #10 for 2018: Will the New Tax Law impact Home Sales, Inventory, and Price Growth in Certain States?

It is difficult to measure demand directly, but inventory is fairly easy to track. Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases. 

I don't have a crystal ball, but watching inventory helps understand the housing market.

Existing Home SalesClick on graph for larger image.

This graph below shows existing home months-of-supply (from the NAR) vs. the seasonally adjusted month-to-month price change in the Case-Shiller National Index (both since January 1999).

There is a clear relationship, and this is no surprise (but interesting to graph).

If months-of-supply is high, price decline. If months-of-supply is low, prices rise.

In the existing home sales report released this morning, the NAR reported months-of-supply at 3.4 months in January. Based on the historical relationship, months-of-supply could double before house prices started declining.

My current expectation is inventory will increase this year, and house price growth will slow a little.

FOMC Minutes: "Labor market continued to strengthen and that economic activity expanded at a solid rate"

by Bill McBride on 2/21/2018 02:08:00 PM

Still on pace for 3 or 4 rate hikes in 2018, although few signs of "broad-based pickup in wage growth".  Some excerpts:

From the Fed: Minutes of the Federal Open Market Committee, January 30-31, 2018:

In their discussion of the economic situation and the outlook, meeting participants agreed that information received since the FOMC met in December indicated that the labor market continued to strengthen and that economic activity expanded at a solid rate. Gains in employment, household spending, and business fixed investment were solid, and the unemployment rate stayed low. On a 12-month basis, both overall inflation and inflation for items other than food and energy continued to run below 2 percent. Market-based measures of inflation compensation increased in recent months but remained low; survey-based measures of longer-term inflation expectations were little changed, on balance.

Participants generally saw incoming information on economic activity and the labor market as consistent with continued above-trend economic growth and a further strengthening in labor market conditions, with the recent solid gains in household and business spending indicating substantial underlying economic momentum. They pointed to accommodative financial conditions, the recently enacted tax legislation, and an improved global economic outlook as factors likely to support economic growth over coming quarters. Participants expected that with further gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market conditions would remain strong. Near-term risks to the economic outlook appeared roughly balanced. Inflation on a 12-month basis was expected to move up this year and to stabilize around the Committee's 2 percent objective over the medium term. However, participants judged that it was important to continue to monitor inflation developments closely.

During their discussion of labor market conditions, participants expressed a range of views about recent wage developments. While some participants heard more reports of wage pressures from their business contacts over the intermeeting period, participants generally noted few signs of a broad-based pickup in wage growth in available data. With regard to how firms might use part of their tax savings to boost compensation, a few participants suggested that such a boost could be in the form of onetime bonuses or variable pay rather than a permanent increase in wage structures. It was noted that the pace of wage gains might not increase appreciably if productivity growth remains low. That said, a number of participants judged that the continued tightening in labor markets was likely to translate into faster wage increases at some point.
emphasis added

A Few Comments on January Existing Home Sales

by Bill McBride on 2/21/2018 12:45:00 PM

Earlier: NAR: "Existing-Home Sales Slip 3.2 Percent in January"

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 January. The consensus was for sales of 5.65 million SAAR in December.  Lawler estimated 5.48 million, and the NAR reported 5.38 million.

"Based on publicly-available local realtor/MLS reports from across the country released through today, I project that existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 5.48 million in January, down 1.6% from December’s preliminary estimate and down 3.7% from last January’s seasonally-adjusted pace."
2) Inventory is still very low and falling year-over-year (down 9.5% year-over-year in January). More inventory would probably mean smaller price increases, and less inventory somewhat larger price increases.    This was the 32nd 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 January (313,000, red column) were below sales in January 2017 (319,000, NSA).

Sales NSA will also be low seasonally in 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.

AIA: "Architecture billings continue growth into 2018"

by Bill McBride on 2/21/2018 10:47:00 AM

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

From the AIA: Architecture billings continue growth into 2018

2018 started on a strong note for architecture firms, as the Architecture Billings Index (ABI) saw its highest January score since 2007. The American Institute of Architects (AIA) reported the January ABI score was 54.7, up from a score of 52.8 in the previous month. This score 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 61.1, down from a reading of 62.0 the previous month, while the new design contracts index increased slightly from 53.4 to 53.9.

“Healthy conditions continue across all sectors and regions except the Northeast, where firm billings softened for the second consecutive month,” said AIA Chief Economist, Kermit Baker, Hon. AIA, PhD. “With strong billings and healthy growth in new projects to start the year, firms remain generally optimistic about business conditions for the next several months.”
...
• Regional averages: West (56.2), South (55.3), Midwest (54.8), Northeast (47.3)

• Sector index breakdown: multi-family residential (56.0), commercial / industrial (53.3), institutional (52.5), mixed practice (50.1)
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 54.7 in January, up from 52.8 in December. 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 11 of the last 12 months, suggesting a further increase in CRE investment in 2018.

NAR: "Existing-Home Sales Slip 3.2 Percent in January"

by Bill McBride on 2/21/2018 10:16:00 AM

From the NAR: Existing-Home Sales Slip 3.2 Percent in January

Existing-home sales slumped for the second consecutive month in January and experienced their largest decline on an annual basis in over three years, according to the National Association of Realtors®. All major regions saw monthly and annual sales declines last month.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, sank 3.2 percent in January to a seasonally adjusted annual rate of 5.38 million from a downwardly revised 5.56 million in December 2017. After last month’s decline, sales are 4.8 percent below a year ago (largest annual decline since August 2014 at 5.5 percent) and at their slowest pace since last September (5.37 million).
...
Total housing inventory at the end of January rose 4.1 percent to 1.52 million existing homes available for sale, but is still 9.5 percent lower than a year ago (1.68 million) and has fallen year-over-year for 32 consecutive months. Unsold inventory is at a 3.4-month supply at the current sales pace (3.6 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 January (5.38 million SAAR) were 3.2% lower than last month, and were 4.8% below the January 2017 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory increased to 1.52 million in January from 1.46 million in December.   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 9.5% year-over-year in January compared to January 2017.  

Months of supply was at 3.4 months in January.

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 ...

MBA: Mortgage Applications Decrease in Latest Weekly Survey

by Bill McBride on 2/21/2018 07:00:00 AM

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

Mortgage applications decreased 6.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 16, 2018.

... The Refinance Index decreased 7 percent from the previous week. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. The unadjusted Purchase Index increased 1 percent compared with the previous week and was 3 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 January 2014, 4.64 percent, from 4.57 percent, with points increasing to 0.61 from 0.59 (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 50 bps or more from the recent level.



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

According to the MBA, purchase activity is up 3% year-over-year.

Tuesday, February 20, 2018

Wednesday: Existing Home Sales, FOMC Minutes

by Bill McBride on 2/20/2018 05:38:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Unable to Extend Last Week's Gains

Mortgage rates moved back up today after ending last week on a positive note. Improvements in rates have been uncommon so far in 2018. In fact, we haven't seen more than 2 consecutive days without a move higher. In that sense, today keeps the prevailing trend intact. If there's a saving grace, it's that rates didn't quite rise back above last week's highs. [30YR FIXED - 4.625%]
emphasis added
Wednesday:
• At 7:00 AM ET,The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 10:00 AM, Existing Home Sales for January from the National Association of Realtors (NAR). The consensus is for 5.65 million SAAR, up from 5.57 million in December. Housing economist Tom Lawler expects the NAR to report sales of 5.48 million SAAR for January.   Take the under!

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

• At 2:00 PM, FOMC Minutes, Meeting of January 30-31, 2018

Q1 GDP Forecasts

by Bill McBride on 2/20/2018 04:03:00 PM

It is early, but here are few Q1 GDP forecast.

From Merrill Lynch:

The weak retail sales data sliced 0.3pp from our 1Q estimate to 2.0%, while 4Q 2017 dropped to 2.5% from 2.7%.
And from the Altanta Fed: GDPNow
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2018 is 3.2 percent on February 16, unchanged from February 14.
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast for 2018:Q1 stands at 3.1%.
CR Note: It looks likely that GDP will be 2% to low 3% range again in Q1.

Update: For Fun, Stock Market as Barometer of Policy Success

by Bill McBride on 2/20/2018 02:12:00 PM

Note: This is mostly a repeat of a June 2017 post with updated statistics and graph, and one new quote.

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

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

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

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

Update: And from White House chief economic advisor Gary Cohn on December 20, 2017:

"I think there is a lot more momentum in the stock market. ... "The stock market is reflecting the reality of what's going in the business environment today," said Cohn, director of the National Economic Council. "There is going to be a continuation [of the] rally in the equity markets based on real underlying fundamentals of the U.S. economy ... as well as companies having more earnings power because of lower tax rates."
For fun, here is a graph comparing S&P500 returns (ex-dividends) under Presidents Trump and Obama:

Stock Market Performance Click on graph for larger image.

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

At this point, the S&P500 is up 20.2% under Mr. Trump - compared to up 37.4% under Mr. Obama for the same number of market days.