Tuesday, July 31, 2018

Wednesday: FOMC Announcement., ISM Mfg, ADP Employment, Construction Spending, Vehicle Sales

by Bill McBride on 7/31/2018 09:16:00 PM

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

• At 8:15 AM, The ADP Employment Report for July. This report is for private payrolls only (no government). The consensus is for 172,000 payroll jobs added in July, up from 177,000 added in June.

• At 10:00 AM, ISM Manufacturing Index for July. The consensus is for the ISM to be at 59.4, down from 60.2 in June.

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

• All day, Light vehicle sales for July. The consensus is for light vehicle sales to be 17.1 million SAAR in July, down from 17.5 million in June (Seasonally Adjusted Annual Rate).

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

Fannie Mae: Mortgage Serious Delinquency rate decreased in June

by Bill McBride on 7/31/2018 04:15:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate decreased to 0.97% in June, down from 1.03% in May. The serious delinquency rate is down from 1.01% in June 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%.

This is the lowest serious delinquency for Fannie Mae since November 2007.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

By vintage, for loans made in 2004 or earlier (3% of portfolio), 3.00% are seriously delinquent. For loans made in 2005 through 2008 (6% of portfolio), 5.54% are seriously delinquent, For recent loans, originated in 2009 through 2018 (91% of portfolio), only 0.41% are seriously delinquent. So Fannie is still working through poor performing loans from the bubble years.

The increase late last year 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).

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

Note: Freddie Mac reported earlier.

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

by Bill McBride on 7/31/2018 02:13:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 6.4% year-over-year in May

It has been over eleven years since the bubble peak. In the Case-Shiller release this morning, the seasonally adjusted National Index (SA), was reported as being 9.5% above the previous bubble peak. However, in real terms, the National index (SA) is still about 9.9% below the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is still 15.8% below the bubble peak.

The year-over-year increase in prices is mostly moving sideways now around 6%. In May, the index was up 6.4% 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 $285,000 today adjusted for inflation (42%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Nominal House Prices

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

In nominal terms, the Case-Shiller National index (SA)and the Case-Shiller Composite 20 Index (SA) are both at new all times highs (above the bubble peak).



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 December 2004 levels, and the Composite 20 index is back to June 2004.

In real terms, house prices are at 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 February 2004 levels, and the Composite 20 index is back to November 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.

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

by Bill McBride on 7/31/2018 11:33:00 AM

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 May 2018).   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 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.

Case-Shiller: National House Price Index increased 6.4% year-over-year in May

by Bill McBride on 7/31/2018 09:23:00 AM

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

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

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

From S&P: Rise in Home Prices Remains Steady at 6.4% According to S&P CoreLogic Case-Shiller Index

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 6.4% annual gain in May, remaining the same as in the previous month. The 10City Composite annual increase came in at 6.1%, down from 6.4% in the previous month. The 20-City Composite posted a 6.5% year-over-year gain, down from 6.7% in the previous month.

Seattle, Las Vegas, and San Francisco continued to report the highest year-over-year gains among the 20 cities. In May, Seattle led the way with a 13.6% year-over-year price increase, followed by Las Vegas with a 12.6% increase and San Francisco with a 10.9% increase. Seven of the 20 cities reported greater price increases in the year ending May 2018 versus the year ending April 2018.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 1.1% in May. The 10-City and 20-City Composites reported increases of 0.5% and 0.7%, respectively. After seasonal adjustment, the National Index recorded a 0.4% month-over-month increase in May. The 10-City and 20-City Composites posted 0.1% and 0.2% month-over-month increases, respectively. Nineteen of 20 cities reported increases in May before seasonal adjustment, while 16 of 20 cities reported increases after seasonal adjustment.

“Home prices continue to rack up gains two to three times greater than the inflation rate,” says David M. Blitzer, Managing Director & Chairman of the Index Committee at S&P Dow Jones Indices. “The year-over-year increases in the S&P CoreLogic Case-Shiller National Index have topped 5% every month since August 2016. Unlike the boom-bust period surrounding the financial crisis, price gains are consistent across the 20 cities tracked in the release; currently, the range of the largest to smallest price change is 10 percentage points compared to a 20 percentage point range since 2001, and a 25 percentage point range between 2006 and 2009. Not only are prices rising consistently, they are doing so across the country.

“Continuing price increases appear to be affecting other housing statistics. Sales of existing single family homes – the market covered by the S&P CoreLogic Case-Shiller Indices – peaked last November and have declined for three months in a row. The number of pending home sales is drifting lower as is the number of existing homes for sale. Sales of new homes are also down and housing starts are flattening. Affordability – a measure based on income, mortgage rates and home prices – has gotten consistently worse over the last 18 months. All these indicators suggest that the combination of rising home prices and rising mortgage rates are beginning to affect the housing market.”
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 1.0% from the peak, and up 0.1% in May (SA).

The Composite 20 index is 2.2% above the bubble peak, and up 0.2% (SA) in May.

The National index is 9.5% above the bubble peak (SA), and up 0.4% (SA) in May.  The National index is up 48.1% 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 6.2% compared to May 2017.  The Composite 20 SA is up 6.5% year-over-year.

The National index SA is up 6.4% year-over-year.

Note: According to the data, prices increased in 18 of 20 cities month-over-month seasonally adjusted.

I'll have more later.

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

by Bill McBride on 7/31/2018 08:39:00 AM

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

Personal income increased $71.7 billion (0.4 percent) in June according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $65.3 billion (0.4 percent) and personal consumption expenditures (PCE) increased $57.1 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 0.1 percent.
The June PCE price index increased 2.2 percent year-over-year and the June PCE price index, excluding food and energy, increased 1.9 percent year-over-year.

The following graph shows real Personal Consumption Expenditures (PCE) through June 2018 (2012 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 at expectations, and the increase in PCE was close to expectations.

PCE growth was solid in Q2, and inflation is close to the Fed's target.

Monday, July 30, 2018

Tuesday: Personal Income and Outlays, Case-Shiller House Prices

by Bill McBride on 7/30/2018 07:14:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Edge to 2-Month Highs

Mortgage rates edged higher today, keeping alive a trend toward higher rates that began just over a week ago. While the overall amount of ground covered as a part of this move isn't necessarily alarming, it's significant because it brings us back to the highest levels since the end of May. [30YR FIXED - 4.625% - 4.75%]
emphasis added
Tuesday:
• At 8:30 AM ET, Personal Income and Outlays for June. The consensus is for a 0.4% increase in personal income, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 9:00 AM, S&P/Case-Shiller House Price Index for May. The consensus is for a 6.6% year-over-year increase in the Comp 20 index for May.

• At 9:45 AM, Chicago Purchasing Managers Index for July. The consensus is for a reading of 62.0, down from 64.1 in June.

Q2 2018 GDP Details on Residential and Commercial Real Estate

by Bill McBride on 7/30/2018 03:15:00 PM

The BEA has released the underlying details for the Q2 advance GDP report.

The BEA reported that investment in non-residential structures increased at a 13.3% annual pace in Q2.  Investment in petroleum and natural gas exploration increased substantially recently, from a $63 billion annual rate in Q4 2016 to a $140 billion annual rate in Q2 2018 - but is still down from a recent peak of $192 billion in Q4 2014.

Without the increase in petroleum and natural gas exploration, non-residential investment would only be up about 3% 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 increased in Q2, and is up 8% year-over-year.

Investment in multimerchandise shopping structures (malls) peaked in 2007 and was down about 2% year-over-year in Q2.   The vacancy rate for malls is still very high, so investment will probably stay low for some time.

Lodging investment increased in Q2, and lodging investment is up 11% 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 $289 billion (SAAR) (about 1.4% of GDP), and was up in Q2 compared to Q1.

Investment in multi-family structures increased in Q2.

Investment in home improvement was at a $256 billion Seasonally Adjusted Annual Rate (SAAR) in Q2 (about 1.25% of GDP).  Home improvement spending has been solid.

Oil Rigs: " A local peak in rig counts"

by Bill McBride on 7/30/2018 12:50:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on July 27, 2018:

• A clear local peak in oil rig counts

• Total oil rigs rose, +3 to 861

• Horizontal oil rigs were flat at 762
...
• Horizontal oil rigs are showing a clear local peak, similar to last July. By the time the count bottomed in November, horizontal oil rigs had fallen by 32. The difference is that oil prices were $20 / barrel lower then.

• Our model sees falling horizontal oil rig counts through Labor Day.
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.

Dallas Fed: "Robust Expansion in Texas Manufacturing Continues; Uncertainty Picks Up"

by Bill McBride on 7/30/2018 10:38:00 AM

From the Dallas Fed: Robust Expansion in Texas Manufacturing Continues; Uncertainty Picks Up

The robust expansion in Texas factory activity continued in July, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose six points to 29.4, signaling an acceleration in output growth.

Other indexes of manufacturing activity also indicated continued solid expansion in July. The survey’s demand measures—the new orders and growth rate of orders indexes—moved down but remained well above average at 23.3 and 17.0, respectively. The shipments index climbed five points to 30.8, and the capacity utilization index edged up to 25.0.

Perceptions of broader business conditions were a bit less positive this month versus June, and uncertainty increased. The general business activity index slipped four points to 32.3. The company outlook index dropped 13 points to 20.4, which is the second-lowest reading this year but still elevated relative to the average. A new question introduced to the survey in January 2018 asks, “How has uncertainty regarding your company’s outlook changed in the current month vs. prior month?” In July, a quarter of firms said uncertainty increased, while only 8 percent said it decreased—bringing the outlook uncertainty index* to 17.0, well above its June reading and the highest level to date.

Labor market measures suggested a pickup in net hiring and longer work hours in July. The employment index pushed up five points to 28.9, a 13-year high. Thirty-six percent of firms noted net hiring, compared with 7 percent noting net layoffs. The hours worked index ticked up to 22.2.

Price and wage pressures remained highly elevated this month. While still well above average, the raw materials prices index moved down five points to 48.6, and the finished goods prices index ticked down to 22.9. Compensation costs continued to rise at a faster clip than normal, with the wages and benefits index holding fairly steady at 32.4.
emphasis added
This was the last of the regional Fed surveys for July.

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

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

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

Based on these regional surveys, it is possible the ISM manufacturing index will be close to 60 in July (to be released on Wednesday, August 1st). The consensus is for the ISM to be at 59.4, down from 60.2 in June.

NAR: Pending Home Sales Index Increased 0.9% in June

by Bill McBride on 7/30/2018 10:04:00 AM

From the NAR: Pending Home Sales Reverse Course, Rise 0.9 Percent in June

Pending home sales increased in all four major regions in June, but overall activity lagged year ago levels for the sixth straight month, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 0.9 percent to 106.9 in June from 105.9 in May. Despite last month’s increase, contract signings are still down 2.5 percent on an annual basis.
...
The PHSI in the Northeast increased 1.4 percent to 93.7 in June, but is still 4.1 percent below a year ago. In the Midwest the index rose 0.5 percent to 101.9 in June, but is still 2.1 percent lower than June 2017.

Pending home sales in the South climbed 1.1 percent to an index of 124.2 in June, but are 0.3 percent below a year ago. The index in the West inched forward 0.7 percent in June to 95.4, but is 5.6 percent below a year ago.
emphasis added
This was close to expectations of a 0.8% increase for this index. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in July and August.

Sunday, July 29, 2018

Sunday Night Futures

by Bill McBride on 7/29/2018 06:44:00 PM

Weekend:
Schedule for Week of July 29, 2018

Monday:
• At 10:00 AM, Pending Home Sales Index for June. The consensus is for a 0.8% increase in the index.

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

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are down 19 and DOW futures are down 90 (fair value).

Oil prices were up over the last week with WTI futures at $69.01 per barrel and Brent at $74.31 per barrel.  A year ago, WTI was at $50, and Brent was at $52 - so oil prices are up 40% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.85 per gallon. A year ago prices were at $2.31 per gallon - so gasoline prices are up 54 cents per gallon year-over-year.

July 2018: Unofficial Problem Bank list declines to 89 Institutions

by Bill McBride on 7/29/2018 11:11:00 AM

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

Here is the unofficial problem bank list for July 2018.

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

Update on the Unofficial Problem Bank List for July 2018. The list had a decline of three insured institutions to 89 banks. Aggregate assets declined during the month by $2.7 billion to $57.3 billion. A year ago, the list held 134 institutions with assets of $32.8 billion.

Actions were terminated against Amboy Bank, Old Bridge, NJ ($2.3 billion); McHenry Savings Bank, McHenry, IL ($225 million); and EH National Bank, Beverly Hills, CA ($182 million).

Saturday, July 28, 2018

Schedule for Week of July 29, 2018

by Bill McBride on 7/28/2018 08:11:00 AM

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

Other key indicators include Personal Income and Outlays for June, Case-Shiller house prices for May, the July ISM manufacturing and non-manufacturing indexes, July auto sales, and the June trade deficit.

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

----- Monday, July 30th -----

10:00 AM: Pending Home Sales Index for June. The consensus is for a 0.8% increase in the index.

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

----- Tuesday, July 31st -----

8:30 AM: Personal Income and Outlays for June. The consensus is for a 0.4% increase in personal income, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.2%.

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

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

The consensus is for a 6.6% year-over-year increase in the Comp 20 index for May.

9:45 AM: Chicago Purchasing Managers Index for July. The consensus is for a reading of 62.0, down from 64.1 in June.

----- Wednesday, Aug 1st -----

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

8:15 AM: The ADP Employment Report for July. This report is for private payrolls only (no government). The consensus is for 172,000 payroll jobs added in July, up from 177,000 added in June.

ISM PMI10:00 AM: ISM Manufacturing Index for July. The consensus is for the ISM to be at 59.4, down from 60.2 in June.

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

The PMI was at 60.2% in June, the employment index was at 56.0%, and the new orders index was at 63.5%.

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

Vehicle SalesAll day: Light vehicle sales for July. The consensus is for light vehicle sales to be 17.1 million SAAR in July, down from 17.5 million in June (Seasonally Adjusted Annual Rate).

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

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

----- Thursday, Aug 2nd -----

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 218 thousand initial claims, up from 217 thousand the previous week.

----- Friday, Aug 3rd -----

Year-over-year change employment8:30 AM: Employment Report for July. The consensus is for an increase of 188,000 non-farm payroll jobs added in July, down from the 213,000 non-farm payroll jobs added in June.

The consensus is for the unemployment rate to decline to 3.9%.

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

In June the year-over-year change was 2.374 million jobs.

A key will be the change in wages.

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

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

The consensus is for the U.S. trade deficit to be at $45.6 billion in June from $43.1 billion in May.

10:00 AM: the ISM non-Manufacturing Index for July. The consensus is for index to decrease to 58.8 from 59.1 in June.

Friday, July 27, 2018

Housing comments from Soylent Green

by Bill McBride on 7/27/2018 04:23:00 PM

Long term readers will remember mortgage broker "Soylent Green is People". He sent me these comments on housing that I'll pass along:

"A bit of a panic is breaking out amongst my Realtor friends. Sales are down. There are more cancellations right before closings than usual. Builders are getting a few drop outs as well on some of their units, but that could be tied to overseas buyers with other concerns. If this sales "air pocket" continues, we might see some Agents have to actually marketing, rather than just shilling their homes at the first buyer through the door. A few Agents have seen their listings grow long in the tooth, even some traditionally priced towards first time home buyers. That's a deja vu event today for 2013 vintage agents, but not so for old dogs like me.

On the mortgage side of things, more and more loans have begun funding in the upper 4's to low 5's. Customers are really chafing at anything priced above 4.75%. In order to expand volume, some lenders are duking it out on price  while others are expanding their debt to income ratios, lowering the buying threshold, just as we saw back in 2006."
CR Note: Higher mortgage rates and the new tax policy appear to be impacting home sales in some areas. But this is a slowdown from a hot market, and I expect the key sectors - single family starts and new home sales - will see further growth.  

Top Twenty Five GDP Quarters since 2000

by Bill McBride on 7/27/2018 01:24:00 PM

With the release of Q2 GDP data, and the 2018 Comprehensive Update to GDP (including revisions), here is an update to the table showing the top 25 quarters since Q1 2000.

Q2 2018 is the eleventh best quarter for real annualized GDP since Q1 2000. Note: unrounded, Q2 2018 was at 4.06%, just behind Q4 2004 at 4.07%.

Q2 GDP was solid..

As I've noted before, based on demographics, 2% is the new 4% (that is just simple arithmetic).   I've also noted that a large government program (such as a war, or a tax cut) can give a short term boost to GDP.


Top 25 GDP Quarters since 2000
Real GDP, Annualized Rate
GDPYearQuarterPresident
17.5%2000Q2Clinton
27.0%2003Q3G.W.Bush
35.4%2006Q1 G.W.Bush
45.1%2014Q2Obama
54.9%2014Q3Obama
64.7%2011Q4 Obama
74.7%2003Q4 G.W.Bush
84.5%2005Q1 G.W.Bush
94.5%2009Q4 Obama
104.1%2004Q4 G.W.Bush
114.1%2018Q2Trump
123.8%2004Q3G.W.Bush
133.7%2010Q2Obama
143.6%2005Q3G.W.Bush
153.6%2013Q1 Obama
163.5%2002Q1 G.W.Bush
173.5%2003Q2G.W.Bush
183.4%2006Q4 G.W.Bush
193.3%2015Q2Obama
203.3%2015Q1 Obama
213.2%2013Q4 Obama
223.2%2013Q3Obama
233.2%2012Q1 Obama
243.1%2004Q2G.W.Bush
253.0%2017Q2Trump

Q2 GDP: Investment

by Bill McBride on 7/27/2018 10:17:00 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) was decreased in Q2 (-1.1% annual rate in Q2).  Equipment investment increased at a 3.9% annual rate, and investment in non-residential structures increased at a 13.3% annual rate.

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

Recently real RI has been soft.

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 decreased in Q2, however RI 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 now primarily coming from single family investment and 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 non-residential structures - as a percent of GDP - picked up.

BEA: Real GDP increased at 4.1% Annualized Rate in Q2

by Bill McBride on 7/27/2018 08:34:00 AM

Note: This release includes the 2018 Comprehensive Update to GDP, and includes revisions to previous GDP releases.

From the BEA: Gross Domestic Product: Second Quarter 2018 (Advance Estimate)

Real gross domestic product increased at an annual rate of 4.1 percent in the second quarter of 2018, according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 2.2 percent (revised).
...
The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (PCE), exports, nonresidential fixed investment, federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The estimates released today also reflect the results of the 15th comprehensive update of the National Income and Product Accounts (NIPAs). The updated estimates reflect previously announced improvements, and include the introduction of new not seasonally adjusted estimates for GDP, GDI, and their major components. For more information, see the Technical Note.
emphasis added
The advance Q2 GDP report, with 4.1% annualized growth, was close to expectations.

Personal consumption expenditures (PCE) increased at 4.0% annualized rate in Q2, up from 0.5% in Q1.   Residential investment (RI) decreased 1.1% in Q2. Equipment investment increased at a 3.9% annualized rate, and investment in non-residential structures increased at a 13.3% pace.

I'll have more later ...

Thursday, July 26, 2018

Friday: GDP

by Bill McBride on 7/26/2018 08:04:00 PM

On GDP, remember that the release will include the 2018 Comprehensive Update to GDP. In addition to revisions and changes in methodology, the entire series of GDP (annually all the way back to 1929, and quarterly back to 1947) will be updated with new seasonal adjustments.

Also the BEA will now release GDP Not Seasonally Adjusted. This will be interesting since every year GDP NSA declines in Q1.

And the final pre-release update from the Altanta Fed: GDPNow

The final GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2018 is 3.8 percent on July 26, down from 4.5 percent on July 18. [July 26 estimate]
emphasis added
Friday:
• At 8:30 AM ET, Gross Domestic Product, 2nd quarter 2018 (Advance estimate). The consensus is that real GDP increased 4.2% annualized in Q2, up from 2.0% in Q1.

• At 10:00 AM,: University of Michigan's Consumer sentiment index (Final for July). The consensus is for a reading of 97.2, up from 97.1.

Freddie Mac: Mortgage Serious Delinquency Rate Decreased in June

by Bill McBride on 7/26/2018 04:43:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in June was 0.82%, down from 0.87% in May. Freddie's rate is down from 0.85% in June 2017.

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

This is the lowest serious delinquency for Freddie Mac since April 2008.

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

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

The increase in the delinquency rate late last year 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 - but this is close to a bottom.

Note: Fannie Mae will report for June soon.

Chemical Activity Barometer Increased in July

by Bill McBride on 7/26/2018 02:35:00 PM

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

From the American Chemistry Council: Chemical Activity Barometer Continues to Signal Gains in U.S. Commercial and Industrial Activity

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), rose 0.1 percent in July on a three-month moving average (3MMA) basis, improving upon June and May performances which were essentially flat. The barometer is up 3.9 percent year-over-year (Y/Y/), a slower pace than of that earlier in the year. The unadjusted CAB also increased, notching a 0.2 percent gain, up from a 0.1 percent gain in June. July readings indicate a continued expansion of U.S. commercial and industrial activity well into the first quarter 2019.
...
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added
Chemical Activity Barometer Click on graph for larger image.

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

The year-over-year increase in the CAB has been solid over the last year, suggesting further gains in industrial production in 2018 and early 2019.

Kansas City Fed: Regional Manufacturing Activity "Continued to Expand Solidly" in July

by Bill McBride on 7/26/2018 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Continued to Expand Solidly

The Federal Reserve Bank of Kansas City released the July Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity continued to expand solidly, and expectations for future growth remained strong.

“Our composite index came down slightly from record highs in recent months,” said Wilkerson. “Many firms remain concerned about labor availability and tariffs, but optimism is still high.”
...
The month-over-month composite index was 23 in July, down from readings of 28 in June and 29 in May. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Factory activity increased solidly at durable and nondurable goods plants, particularly for petroleum and coal products, minerals, fabricated metal, computers and electronics, and transportation equipment. Month-over-month indexes were mixed compared with the previous month, but most indexes remained at high levels. The employment index inched up while the order backlog and new orders for exports indexes were virtually unchanged. The production and shipments indexes fell moderately, and the new orders index eased somewhat. The raw materials index fell modestly and the finished goods inventory index also dipped slightly.
emphasis added
All of the regional surveys for July have been solid so far.

HVS: Q2 2018 Homeownership and Vacancy Rates

by Bill McBride on 7/26/2018 10:06:00 AM

The Census Bureau released the Residential Vacancies and Homeownership report for Q2 2018.

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 64.3% in Q2, from 64.2% in Q1.

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

Homeowner Vacancy RateThe HVS homeowner vacancy was unchanged at 1.5% in Q2. 

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

Rental Vacancy RateThe rental vacancy rate decreased to 6.8% in Q2.

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

Overall this suggests that vacancies have declined significantly, and my guess is the homeownership rate has bottomed - and that the rental vacancy rate has bottomed for this cycle.

Weekly Initial Unemployment Claims increased to 217,000

by Bill McBride on 7/26/2018 08:37:00 AM

The DOL reported:

In the week ending July 21, the advance figure for seasonally adjusted initial claims was 217,000, an increase of 9,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 207,000 to 208,000. The 4-week moving average was 218,000, a decrease of 2,750 from the previous week's revised average. The previous week's average was revised up by 250 from 220,500 to 220,750.
emphasis added
The previous week was revised up.

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

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 218,000.

This was at the consensus forecast. The low level of claims suggest few layoffs.

Wednesday, July 25, 2018

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

by Bill McBride on 7/25/2018 08:38:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 217 thousand initial claims, up from 207 thousand the previous week.

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

• At 10:00 AM, the Q2 2018 Housing Vacancies and Homeownership from the Census Bureau.

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

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

by Bill McBride on 7/25/2018 04:02:00 PM

From the National Multifamily Housing Council (NMHC): July Apartment Market Conditions Show Improvement

Apartment market conditions improved across three of the four indexes measured by the July National Multifamily Housing Council (NMHC) Quarterly Survey of Apartment Market Conditions. The Sales Volume (55), Equity Financing (56) and Debt Financing Indexes (55) all increased to above the breakeven level of 50, while the Market Tightness Index came in at 46.

“The apartment industry is showing small, but unmistakable signs of improvement,” said NMHC Chief Economist Mark Obrinsky, “The Market Tightness Index continues to show some weakening. However, the number of respondents who reported looser conditions fell to 29 percent, the lowest share since January of 2016.”

“Of greater concern is that the demand for construction labor has been growing faster than supply, driving up costs and delaying some projects. In fact, the majority of firms reported that the availability of construction labor has declined over the past year, even accounting for increased compensation,” said Obrinsky.
...
At 46, the Market Tightness Index was the only index to remain below 50, marking the eleventh consecutive quarter of overall declining conditions. One-fifth of respondents reported tighter market conditions than three months prior, compared to 29 percent who reported looser conditions. Half of respondents felt that conditions were no different from last quarter.
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 eleventh consecutive quarterly survey indicating looser conditions - it appears supply has caught up with demand - and I expect rent growth to continue to slow.

Technical Note: GDP Release and Revisions

by Bill McBride on 7/25/2018 02:38:00 PM

With the GDP release on Friday, the BEA will release the 2018 Comprehensive Update. This will include changes in how GDP is calculated, revisions to previous years, and the third phase of removing residual seasonality.

A few key points:
1. The entire series of GDP (annually all the way back to 1929, and quarterly back to 1947) will be updated with new seasonal adjustments.
2. Forecasts of Q2 GDP could be off significantly.
3. The BEA will now release GDP Not Seasonally Adjusted (every year GDP NSA declines in Q1).

From the BEA: Preview of the 2018 Comprehensive Update of the National Income and Product Accounts

In July, the Bureau of Economic Analysis (BEA) will release the initial results of the 15th comprehensive, or benchmark, update of the national income and product accounts (NIPAs). Comprehensive updates are usually conducted at 5-year intervals that correspond with the integration of updated statistics from BEA’s quinquennial benchmark input-output accounts; the last comprehensive update was released in July 2013.

Comprehensive updates and, to a lesser extent, annual updates, provide the opportunity to introduce major improvements to maintain and to improve the NIPAs as outlined in BEA’s strategic plan. The changes are generally of three major types: (1) statistical changes to introduce new and improved methodologies and to incorporate newly available and revised source data, (2) changes in definitions to more accurately portray the evolving U.S. economy and to provide consistent comparisons with data for other national economies, and (3) changes in presentations to reflect the definitional and statistical changes, where necessary, or to provide additional data or perspectives for users.

This article describes the major changes that will be introduced in the NIPAs as part of the upcoming comprehensive update.
And from the BEA: BEA on Track to Implement Third Phase to Combat Potential for Residual Seasonality in GDP
The U.S. Bureau of Economic Analysis is on track to soon implement the third phase of a three-pronged plan to mitigate any potential for residual seasonality in gross domestic product. That’s when seasonal patterns remain in the data even after they are adjusted for seasonal variations.

BEA laid out the plan in 2016, after conducting a painstaking component-by-component review of some 2,000 nominal data series included in GDP to look for possible sources of residual seasonality.
...
Applying seasonal adjustment improvements to the entire GDP times series. (Annual figures stretch back to 1929 and quarterly figures back to 1947).

Publicly releasing estimates for GDP (and gross domestic income) that are not seasonally adjusted, including major components, for the years 2002 and forward.
emphasis added

A few Comments on June New Home Sales

by Bill McBride on 7/25/2018 12:34:00 PM

New home sales for June were reported at 631,000 on a seasonally adjusted annual rate basis (SAAR). This was below the consensus forecast, and the three previous months, combined, were revised down.

Sales in June were up 2.4% year-over-year compared to June 2017.   This was weak YoY growth, especially since was a fairly easy comparison since new home sales were soft in mid-year 2017.

There have been several articles recently about a weaker housing market (see: Has the Housing Market Peaked? (Part 2)).  However I expect new home sales and single family starts will increase further over the next couple of years.

If new home sales weaken further this year, I'd be a more concerned.  But so far, the growth in new home sales in 2018 is about what I expected.

Earlier: New Home Sales decrease to 631,000 Annual Rate in June.

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 are up 6.9% through June compared to the same period in 2017. Decent growth so far, and the next two months will be an easy comparison to 2017.

This is on track to be close to my forecast for 2018 of 650 thousand new home sales for the year; an increase of about 6% over 2017.   There are downside risks to that forecast, such as higher mortgage rates, higher costs (labor and material), and possible policy errors.

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

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through June 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.

New Home Sales decrease to 631,000 Annual Rate in June

by Bill McBride on 7/25/2018 10:11:00 AM

The Census Bureau reports New Home Sales in June were at a seasonally adjusted annual rate (SAAR) of 631 thousand.

The previous three months were revised down, combined.

"Sales of new single-family houses in June 2018 were at a seasonally adjusted annual rate of 631,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 5.3 percent below the revised May rate of 666,000, but is 2.4 percent above the June 2017 estimate of 616,000."
emphasis added
New Home SalesClick on graph for larger image.

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

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

The second graph shows New Home Months of Supply.

New Home Sales, Months of SupplyThe months of supply increased in June to 5.7 months from 5.3 months in May.

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

This is in the normal range (less than 6 months supply is normal).
"The seasonally-adjusted estimate of new houses for sale at the end of June was 301,000. 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 somewhat low, and the combined total of completed and under construction is also somewhat low.

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

In June 2018 (red column), 57 thousand new homes were sold (NSA). Last year, 56 thousand homes were sold in June.

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

This was below expectations of 669,000 sales SAAR, and the previous months were revised down, combined. I'll have more later today.

MBA: Mortgage Applications Decreased Slightly in Latest Weekly Survey

by Bill McBride on 7/25/2018 07:00:00 AM

From the MBA: Mortgage Application Activity and Rates Nearly Flat in Latest MBA Weekly Survey

Mortgage applications decreased 0.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 20, 2018.

... The Refinance Index increased 1 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 2 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 at 4.77 percent, with points decreasing to 0.45 from 0.46 (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 IndexThe second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is up 2% year-over-year.

Tuesday, July 24, 2018

Wednesday: New Home Sales

by Bill McBride on 7/24/2018 08:00:00 PM

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

• At 10:00 AM: New Home Sales for June from the Census Bureau. The consensus is for 669 thousand SAAR, down from 689 thousand in May.

Has the Housing Market Peaked? (Part 2)

by Bill McBride on 7/24/2018 04:09:00 PM

On Friday I wrote: Has Housing Market Activity Peaked? I concluded

"I do not think housing has peaked, and I think new home sales and single family starts will increase further over the next couple of years."
Since then we've seen several reports of softening existing home sales in a number of cities (Seattle, Portland, California, and more). And the NAR reported sales were down year-over-year in June, and probably more important that inventory was up year-over=year for the first time since June 2015.

And the CAR reported California: "Home sales stumble", Inventory up 8.1% YoY

As I noted last Friday, I think it is likely that existing home sales will move more sideways going forward. However it is important to remember that new home sales are more important for jobs and the economy than existing home sales. Since existing sales are existing stock, the only direct contribution to GDP is the broker's commission. There is usually some additional spending with an existing home purchase - new furniture, etc. - but overall the economic impact is small compared to a new home sale.

Also I think the growth in multi-family starts is behind us, and that multi-family starts peaked in June 2015. See: Comments on June Housing Starts

For the economy, what we should be focused on are single family starts and new home sales. As I noted in Investment and Recessions "New Home Sales appears to be an excellent leading indicator, and currently new home sales (and housing starts) are up solidly year-over-year, and this suggests there is no recession in sight."

For the bottoms and troughs for key housing activity, here is a graph of Single family housing starts, New Home Sales, and Residential Investment (RI) as a percent of GDP.

Starts, new home sales, residential Investment Click on graph for larger image.

The arrows point to some of the earlier peaks and troughs for these three measures.

The purpose of this graph is to show that these three indicators generally reach peaks and troughs together. Note that Residential Investment is quarterly and single-family starts and new home sales are monthly.

RI as a percent of GDP has been sluggish recently, mostly due to softness in multi-family residential.   However, both single family starts and new home sales are still moving up (ignoring month-to-month fluctuations).

Also, look at the relatively low level of RI as a percent of GDP, new home sales and single family starts compared to previous peaks.   To have a significant downturn from these levels would be surprising.

So my view remains: I do not think housing has peaked, and I think new home sales and single family starts will increase further over the next couple of years.

Top Twenty GDP Quarters since 2000

by Bill McBride on 7/24/2018 01:16:00 PM

I expect some really poor analysis after the advance GDP report is released on Friday (the Consensus is the BEA will report real annualized GDP of 4.2% for Q2).

Below is a table of the top 20 quarters since Q1 2000. A 4.2% quarter would be the 9th best since Q1 2000.

As I've noted before, based on demographics, 2% is the new 4% (that is just simple arithmetic).   I've also noted that a large government program (such as a war, or a tax cut) can give a short term boost to GDP.   So Q2 should be fine, but not a game change.


Top 20 GDP Quarters since 2000
Real GDP, Annualized Rate
GDPYearQuarterPresident
17.8%2000Q2Clinton
26.9%2003Q3G.W.Bush
35.2%2014Q3Obama
44.9%2006Q1G.W.Bush
54.8%2003Q4G.W.Bush
64.6%2011Q4Obama
74.6%2014Q2Obama
84.3%2005Q1G.W.Bush
94.0%2013Q4Obama
103.9%2009Q4Obama
113.9%2010Q2Obama
123.8%2003Q2G.W.Bush
133.7%2002Q1G.W.Bush
143.7%2004Q3G.W.Bush
153.5%2004Q4G.W.Bush
163.4%2005Q3G.W.Bush
173.2%2006Q4G.W.Bush
183.2%2015Q1Obama
193.2%2017Q3Trump
203.1%2007Q2G.W.Bush

Richmond Fed: "Fifth District Manufacturing Firms Saw Slowing Growth in July"

by Bill McBride on 7/24/2018 10:02:00 AM

From the Richmond Fed: Fifth District Manufacturing Firms Saw Slowing Growth in July

Fifth District manufacturing expanded at a slower pace in July, according to results of the most recent survey from the Federal Reserve Bank of Richmond. The composite manufacturing index fell from 21 in June to 20 in July, but it remained in solid expansionary territory. This decrease resulted from a decrease in the employment and shipments indexes, as the other component (new orders) held steady. Firms were optimistic in July, expecting to see robust growth across most indicators in the coming months.

Manufacturing employment growth slowed in July, as the employment index fell from 23 in June to 22 in July. Firms continued to struggle to find workers with the skills they needed and expect this struggle to continue in the next six months.
emphasis added
All of the regional manufacturing reports for July have been solid so far.

Black Knight: National Mortgage Delinquency Rate Increased Slightly in June

by Bill McBride on 7/24/2018 08:39:00 AM

From Black Knight: Black Knight’s First Look: June Sees Fewest Foreclosure Starts in Over 17 Years; Active Foreclosure Inventory Falls Below 300,000 for First Time Since Q3 2006

• Foreclosure starts fell another 3.1 percent in June for the lowest single-month total in more than 17 years

• Active foreclosures continued to decline as well, falling below 300,000 for the first time in nearly 12 years

• The inventory of loans in active foreclosure has fallen 30 percent (-119k) over the past 12 months

• Delinquencies edged seasonally upward in June, but remain 1.59 percent below last year’s levels

• After rising following the 2017 hurricane season, 90-day delinquencies hit a new post-recession low
According to Black Knight's First Look report for June, the percent of loans delinquent increased 2.7% in June compared to May, and decreased 1.6% year-over-year.

The percent of loans in the foreclosure process decreased 4.5% in June and were down 30.0% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 3.74% in June, up from 3.64% in May.

The percent of loans in the foreclosure process decreased in June to 0.56%.

The number of delinquent properties, but not in foreclosure, is down 7,000 properties year-over-year, and the number of properties in the foreclosure process is down 119,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  June
2018
May
2018
June
2017
June
2016
Delinquent3.74%3.64%3.80%4.31%
In Foreclosure0.56%0.59%0.81%1.10%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:1,925,0001,867,0001,932,0002,178,000
Number of properties in foreclosure pre-sale inventory:291,000303,000410,000558,000
Total Properties2,216,0002,171,0002,342,0002,736,000

Monday, July 23, 2018

Mortgage Rates at Top of Recent Range

by Bill McBride on 7/23/2018 07:31:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Surge to 1-Month Highs

Mortgage rates rose today at the quickest pace in months, ultimately hitting the highest levels since June 25th for the average lender. While neither of those are "fun" facts for fans of low rates, they are made slightly more palatable by the nature of the recent range.

Specifically, rates hadn't moved very much since late June. The average mortgage seeker will not have seen a change in their quoted interest rate during that time (the only adjustments have been to upfront closing costs/credits). The point is that it didn't require a huge move to be able to say "highest in a month" or "fastest pace in months." [30YR FIXED - 4.625% - 4.75%]
emphasis added
Tuesday:
• At 9:00 AM ET, FHFA House Price Index for May 2018. This was originally a GSE only repeat sales, however there is also an expanded index.

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

Housing Inventory Tracking

by Bill McBride on 7/23/2018 03:17:00 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.

Inventory, on a national basis, was up 0.5% year-over-year (YoY) in June, the first YoY increase since June 2015!

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

Click on graph for larger image.

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

Note that inventory in Sacramento was up 26% year-over-year in June (inventory was still very low), and has increased YoY for nine consecutive months. 

Also note that inventory is still down 11% YoY in Las Vegas (red), but the YoY decline has been getting smaller - and inventory in Vegas will probably be up YoY very soon.

Houston is a special case, and inventory was up for several years due to lower oil prices, but declined YoY recently as oil prices increased.

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.   Currently I expect national inventory will be up YoY at the end of 2018 (but still be low).

This is not comparable to late 2005 when inventory increased sharply signaling the end of the housing bubble, but it does appear that inventory is bottoming nationally.

California: "Home sales stumble", Inventory up 8.1% YoY

by Bill McBride on 7/23/2018 02:08:00 PM

The CAR reported today: California home sales stumble in June as median price hits new high for second straight month, C.A.R. reports

Closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 410,800 units in June, according to information collected by C.A.R. from more than 90 local REALTOR® associations and MLSs statewide. The statewide annualized sales figure represents what would be the total number of homes sold during 2018 if sales maintained the June pace throughout the year. It is adjusted to account for seasonal factors that typically influence home sales.

June’s sales figure was up 0.4 percent from the revised 409,270 level in May and down 7.3 percent compared with home sales in June 2017 of 443,120. The year-over-year sales decline was the largest in nearly four years.

“California’s housing market underperformed again, despite an increase in active listings for the third straight month,” said C.A.R. President Steve White. “The lackluster spring homebuying season could be a sign of waning buyer interest as endlessly rising home prices and buyer fatigue adversely affected pent-up demand.”
...
Statewide active listings improved for the third consecutive month, increasing 8.1 percent from the previous year. The year-over-year increase was slightly below that of last month, which was the largest since January 2015, when active listings jumped 11.0 percent.
emphasis added
Here is some data from the NAR and CAR (ht Tom Lawler)

YOY % Change, Existing SF Homes for Sale
  NAR
(National)
CAR
(California)
Sep-17-8.4%-11.2%
Oct-17-10.4%-11.5%
Nov-17-9.7%-11.5%
Dec-17-11.5%-12.0%
Jan-18-9.5%-6.6%
Feb-18-8.6%-1.3%
Mar-18-7.2%-1.0%
Apr-18-6.3%1.9%
May-18-5.18.3%
Jun-180.5%8.1%

A Few Comments on June Existing Home Sales

by Bill McBride on 7/23/2018 11:59:00 AM

Earlier: NAR: Existing-Home Sales Decline in June, Inventory UP Year-over-year

The big story in the monthly existing home report was that inventory was UP year-over-year for the first time since 2015.  I've write more about this.

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 April.   The consensus was for sales of 5.45 million SAAR, Lawler estimated the NAR would report 5.35 million SAAR in June, and the NAR actually reported 5.38 million.

2) Inventory is still very low, but increased 0.5% year-over-year (YoY) in June. This was the 1st year-over-year increase since June 2015, following 36 consecutive months 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 June (570,000, red column) were  below sales in June 2017 (600,000, NSA).

Sales NSA through June (first six months) are down about 2.2% from the same period in 2017.

This is a small decline - but it is possible there has been an impact from higher interest rates and / or the changes to the tax law (eliminating property taxes write-off, etc).

NAR: Existing-Home Sales Decline in June, Inventory UP Year-over-year

by Bill McBride on 7/23/2018 10:11:00 AM

From the NAR: Existing-Home Sales Subside 0.6 Percent in June

Existing-home sales decreased for the third straight month in June, as declines in the South and West exceeded sales gains in the Northeast and Midwest, according to the National Association of Realtors®. The ongoing supply and demand imbalance helped push June’s median sales price to a new all-time high.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, decreased 0.6 percent to a seasonally adjusted annual rate of 5.38 million in June from a downwardly revised 5.41 million in May. With last month’s decline, sales are now 2.2 percent below a year ago.
...
Total housing inventory at the end of June climbed 4.3 percent to 1.95 million existing homes available for sale, and is 0.5 percent above a year ago (1.94 million) – the first year-over-year increase since June 2015. Unsold inventory is at a 4.3-month supply at the current sales pace (4.2 months a year ago).
emphasis added
Existing Home SalesClick on graph for larger image.

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

Sales in June (5.38 million SAAR) were 0.6% lower than last month, and were 2.2% below the June 2017 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory increased to 1.95 million in June from 1.87 million in May.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

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

Year-over-year Inventory Inventory increased 0.5% year-over-year in June compared to June 2017.  

Months of supply was at 4.3 months in June.

Sales were below the consensus view. For existing home sales, a key number is inventory - and inventory is still low, but appears to be bottoming. I'll have more later ...