Friday, November 30, 2018

Oil Rigs Increased

by Bill McBride on 11/30/2018 07:01:00 PM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on November 30, 2018:

• Oil rigs gained +2 to 887

• Horizontal oil rigs gained more solidly, +5 at 779

• The model forecasts one more week of rig gains, after which numbers crash.

• Breakeven to add rigs rose to around $72 WTI, compared to $50.50 WTI on the screen as of the writing of this report
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.

Fannie Mae: Mortgage Serious Delinquency Rate Declined in October

by Bill McBride on 11/30/2018 04:12:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate declined to 0.79% in October, from 0.82% in September. The serious delinquency rate is down from 1.01% in October 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 rate for Fannie Mae since September 2007.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

By vintage, for loans made in 2004 or earlier (3% of portfolio), 2.73% are seriously delinquent. For loans made in 2005 through 2008 (5% of portfolio), 4.82% are seriously delinquent, For recent loans, originated in 2009 through 2018 (92% of portfolio), only 0.33% 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 - there were no worries about the overall market.

I expect the serious delinquency rate will probably decline to 0.5 to 0.7 percent or so to a cycle bottom.

Note: Freddie Mac reported earlier.

Q4 GDP Forecasts

by Bill McBride on 11/30/2018 02:38:00 PM

From Merrill Lynch:

We continue to track 3Q GDP at 3.5% qoq saar while 4Q GDP is tracking higher at 2.7% [Nov 30 estimate].
emphasis added
And from the Altanta Fed: GDPNow
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2018 is 2.6 percent on November 29, up from 2.5 percent on November 21. [Nov 29 estimate]
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast for 2018:Q4 stands at 2.5%. [Nov 30 estimate]
CR Note: These early estimates suggest GDP in the mid-to-high 2s for Q4.

NAR 2019 Home Price Forecast Correction

by Bill McBride on 11/30/2018 12:54:00 PM

In the Pending Home Sales release yesterday, the NAR wrote:

Looking ahead to next year, existing sales are forecast to decline 0.4 percent and home prices to drop roughly 2.5 percent.
Forecasting a price decline would be huge news!

However that was a typo in the release. As Andrea Riquier at MarketWatch noted on the NAR forecast (after contacting the NAR):
Home prices WILL NOT DECLINE 2.5%, price appreciation will decline to a 2.5% annual rate.
This is still lower than the 3.1% median home price increase in 2019 that NAR economist Lawrence Yun was forecasting a few weeks.

Zillow Case-Shiller Forecast: Slower House Price Gains in October

by Bill McBride on 11/30/2018 11:53:00 AM

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

From Aaron Terrazas at Zillow: September Case-Shiller Results and October Forecast: A Slow Return to the Push-Pull of a Normal Market

The U.S. National S&P CoreLogic Case-Shiller Home Price Index — which tracks home prices — rose 5.5 percent in September from a year earlier, in line with Zillow’s forecast last month.
...
Zillow forecasts an even slower 5.4 percent annual gain for October.
The Zillow forecast is for the year-over-year change for the Case-Shiller National index to be smaller in September than in August as house price growth slows.
Zillow forecast for Case-Shiller

Chicago PMI Increased in November

by Bill McBride on 11/30/2018 10:02:00 AM

From the Chicago PMI: Chicago Business Barometer Surges to 66.4 in November

The MNI Chicago Business Barometer surged to an 11-month high of 66.4 in November, up 8.0 points from October’s 58.4.

Business activity recorded its most impressive performance so far this year in November, ending a three-month run of declines. Although broad-based, with increases across all five of the Barometer’s subcomponents, resurgent orders, solid output and higher unfinished orders were the month’s key drivers.
...
Building on October’s rise, the Employment indicator strengthened further in November, hitting a three-month high and moving further clear of the neutral-50 mark.

“The MNI Chicago Business Barometer clipped a run of three consecutive declines in emphatic style in November, boosted primarily by resurgent orders – stronger than typically seen at this time of year and enough to push the Barometer to its best level since December,” said Jamie Satchi, Economist at MNI Indicators.

“However, many firms reported seeing the effects of higher China tariffs on their invoices for the first time, and voiced concern that business could be stifled going forward,” he added.
emphasis added
This was well above the consensus forecast of 58.0.

Thursday, November 29, 2018

Freddie Mac: Mortgage Serious Delinquency Rate Decreased in October

by Bill McBride on 11/29/2018 05:39:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in October was 0.71%, down from 0.73% in September. Freddie's rate is down from 0.86% in October 2017.

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

This is the lowest serious delinquency rate for Freddie Mac since January 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 (These are serious delinquencies, so it took three months late to be counted).

I expect the delinquency rate to decline to a cycle bottom in the 0.5% to 0.7% range - but this is close to a bottom.

Note: Fannie Mae will report for October soon.

FOMC Minutes: "Further gradual increases"

by Bill McBride on 11/29/2018 05:33:00 PM

Catching up … From the Fed: Minutes of the Federal Open Market Committee, November 7-8, 2018. A few excerpts:

In their discussion of monetary policy, participants agreed that it would be appropriate to maintain the current target range for the federal funds rate at this meeting. Participants generally judged that the economy had been evolving about as they had anticipated, with economic activity rising at a strong rate, labor market conditions continuing to strengthen, and inflation running at or near the Committee's longer-run objective. Almost all participants reaffirmed the view that further gradual increases in the target range for the federal funds rate would likely be consistent with sustaining the Committee's objectives of maximum employment and price stability.

Consistent with their judgment that a gradual approach to policy normalization remained appropriate, almost all participants expressed the view that another increase in the target range for the federal funds rate was likely to be warranted fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations. However, a few participants, while viewing further gradual increases in the target range of the federal funds rate as likely to be appropriate, expressed uncertainty about the timing of such increases. A couple of participants noted that the federal funds rate might currently be near its neutral level and that further increases in the federal funds rate could unduly slow the expansion of economic activity and put downward pressure on inflation and inflation expectations.

Participants emphasized that the Committee's approach to setting the stance of policy should be importantly guided by incoming data and their implications for the economic outlook. They noted that their expectations for the path of the federal funds rate were based on their current assessment of the economic outlook. Monetary policy was not on a preset course; if incoming information prompted meaningful reassessments of the economic outlook and attendant risks, either to the upside or the downside, their policy outlook would change. Various factors such as the recent tightening in financial conditions, risks in the global outlook, and some signs of slowing in interest-sensitive sectors of the economy on the one hand, and further indicators of tightness in labor markets and possible inflationary pressures, on the other hand, were noted in this context. Participants also commented on how the Committee's communications in its postmeeting statement might need to be revised at coming meetings, particularly the language referring to the Committee's expectations for "further gradual increases" in the target range for the federal funds rate. Many participants indicated that it might be appropriate at some upcoming meetings to begin to transition to statement language that placed greater emphasis on the evaluation of incoming data in assessing the economic and policy outlook; such a change would help to convey the Committee's flexible approach in responding to changing economic circumstances.
emphasis added

NAR: Pending Home Sales Index Decreased 2.6% in October

by Bill McBride on 11/29/2018 10:03:00 AM

From the NAR: Pending Home Sales Slip 2.6 Percent in October

Pending home sales declined slightly in October in all regions but the Northeast, according to the National Association of Realtors®.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 2.6 percent to 102.1 in October, down from 104.8 in September. However, year-over-year contract signings dropped 6.7 percent, making this the tenth straight month of annual decreases.
...
The PHSI in the Northeast rose 0.7 percent to 92.9 in October, and is now 2.9 percent below a year ago. In the Midwest, the index fell 1.8 percent to 100.4 in October and is 4.9 percent lower than October 2017.

Pending home sales in the South fell 1.1 percent to an index of 118.9 in October, which is 4.6 percent lower than a year ago. The index in the West decreased 8.9 percent in October to 84.8 and fell 15.3 percent below a year ago.
emphasis added
This was well below expectations for this index. Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in November and December.

Personal Income increased 0.5% in October, Spending increased 0.6%

by Bill McBride on 11/29/2018 08:41:00 AM

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

Personal income increased $84.9 billion (0.5 percent) in October according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $81.7 billion (0.5 percent) and personal consumption expenditures (PCE) increased $86.9 billion (0.6 percent).

Real DPI increased 0.3 percent in October and Real PCE increased 0.4 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.1 percent.
The October PCE price index increased 2.0 percent year-over-year and the October PCE price index, excluding food and energy, also increased 1.8 percent year-over-year.

The following graph shows real Personal Consumption Expenditures (PCE) through October 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, and the increase in PCE, were both above expectations.

Weekly Initial Unemployment Claims increased to 234,000

by Bill McBride on 11/29/2018 08:33:00 AM

The DOL reported:

In the week ending November 24, the advance figure for seasonally adjusted initial claims was 234,000, an increase of 10,000 from the previous week's unrevised level of 224,000. The 4-week moving average was 223,250, an increase of 4,750 from the previous week's unrevised average of 218,500.
emphasis added
The previous week was unrevised.

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

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 223,250.

This was higher than the consensus forecast, and initial claims have increased recently. However the low level of claims suggest few layoffs.

Wednesday, November 28, 2018

Thursday: Unemployment Claims, Personal Income & Outlays, Pending Home Sales, FOMC Minutes

by Bill McBride on 11/28/2018 08:01:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 218 thousand initial claims, down from 224 thousand the previous week.

• At 8:30 AM, Personal Income and Outlays for October. 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 10:00 AM, Pending Home Sales Index for October. The consensus is for a 0.5% increase in the index.

• At 2:00 PM, The Fed will release the FOMC Minutes for the Meeting of November 7-8, 2018

Chemical Activity Barometer Declines in November

by Bill McBride on 11/28/2018 04:35:00 PM

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

From the American Chemistry Council: Chemical Activity Barometer Adds to Signs U.S. Economy May Be Facing More Than a Seasonal Chill

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), posted a 0.3 percent decline in November on a three-month moving average (3MMA) basis. This marks the barometer’s first month-over-month drop since February 2016 and adds to the chorus of growing concern of slowing U.S economic expansion. On a year-over-year basis the barometer is up 2.8 percent (3MMA), a marked slowdown in the pace of growth from earlier this year.
...
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 softened recently, suggesting further gains in industrial production into 2019, but at a slower pace.

Richmond Fed: "Fifth District Manufacturing Activity Grew Moderately in November"

by Bill McBride on 11/28/2018 01:27:00 PM

Earlier from the Richmond Fed: Fifth District Manufacturing Activity Grew Moderately in November

Fifth District manufacturing activity grew moderately in November, according to results of the most recent survey from the Federal Reserve Bank of Richmond. The composite index slipped from 15 in October to 14 in November, pulled down by drops in the indexes for new orders and employment, while the other component, the index for shipments, rose. However, all three continued to reflect expansion, as did most other measures of manufacturing activity. Firms were optimistic, expecting growth to continue in the next six months.

While survey results suggested growth in employment and wages among manufacturing firms in November, the struggle to find workers with the required skills persisted.
emphasis added
This was the last of the regional Fed surveys for November.

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

Based on these regional surveys, it seems likely the ISM manufacturing index will decline slightly, but remain solid in November (to be released on Monday, December 3rd).

Fed Chair Powell: The Federal Reserve's Framework for Monitoring Financial Stability

by Bill McBride on 11/28/2018 12:04:00 PM

From Fed Chair Powell: The Federal Reserve's Framework for Monitoring Financial Stability

Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy‑‑that is, neither speeding up nor slowing down growth. My FOMC colleagues and I, as well as many private-sector economists, are forecasting continued solid growth, low unemployment, and inflation near 2 percent.
CR note: This seems pretty consistent with prior comments.

A few Comments on October New Home Sales

by Bill McBride on 11/28/2018 11:01:00 AM

New home sales for October were reported at 544,000 on a seasonally adjusted annual rate basis (SAAR). This was below the consensus forecast, however the three previous months were revised up significantly. Although weak, this was only a little below the initial report for September of 553,000 (now revised up to 597,000).

Sales in October were down 12.0% year-over-year compared to October 2017.    The largest declines were in the Northeast, possibly due to a combination of higher interest rates and changes in the tax law.

On Inventory: Months of inventory is now above the top of the normal range, however the number of units completed and under construction is still somewhat low.   Inventory will be something to watch very closely.

Earlier: New Home Sales decrease to 544,000 Annual Rate in October.

New Home Sales 2017 2018Click on graph for larger image.

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

Sales are only up 2.8% through October compared to the same period in 2017.

And the comparison in November will be very difficult (Sales in November 2017 were strong).  And sales might finish the year down from 2017,.

This is below my forecast for 2018 for an increase of about 6% over 2017. As I noted early this year, there were downside risks to that forecast, primarily higher mortgage rates, but also higher costs (labor and material), the impact of the new tax law, and other 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 October 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 still expect this gap to slowly close.   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 544,000 Annual Rate in October

by Bill McBride on 11/28/2018 10:14:00 AM

The Census Bureau reports New Home Sales in October were at a seasonally adjusted annual rate (SAAR) of 544 thousand.

The previous three months were revised up significantly.

"Sales of new single‐family houses in October 2018 were at a seasonally adjusted annual rate of 544,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 8.9 percent  below the revised September rate of 597,000 and is 12.0 percent below the October 2017 estimate of 618,000. "
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 October to 7.4 months from 6.5 months in September.

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

This is above the normal range (less than 6 months supply is normal).
"The seasonally‐adjusted estimate of new houses for sale at the end of October was 336,000. This represents a supply of 7.4 months at the current sales rate."
New Home Sales, InventoryOn inventory, according to the Census Bureau:
"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."
Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

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

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

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

In October 2018 (red column), 42 thousand new homes were sold (NSA). Last year, 49 thousand homes were sold in October.

The all time high for September was 105 thousand in 2005, and the all time low for October was 23 thousand in 2010.

This was well below expectations of 575,000 sales SAAR, however the previous months were revised up significantly. I'll have more later today.

Q3 GDP Unrevised at 3.5% Annual Rate

by Bill McBride on 11/28/2018 08:34:00 AM

From the BEA: Gross Domestic Product, Third Quarter 2018 (Second Estimate); Corporate Profits, Third Quarter 2018 (Preliminary Estimate)

Real gross domestic product (GDP) increased at an annual rate of 3.5 percent in the third quarter of 2018, according to the "second" estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP increased 4.2 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 also 3.5 percent. With this second estimate for the third quarter, the general picture of economic growth remains the same; upward revisions to nonresidential fixed investment and private inventory investment were offset by downward revisions to personal consumption expenditures (PCE) and state and local government spending.
emphasis added
PCE growth was revised down from 4.0% to 3.6%. Residential investment was revised up from -4.0% to -2.6%. This was at the consensus forecast.

Here is a Comparison of Second and Advance Estimates.

MBA: Mortgage Applications Increased in Latest Weekly Survey

by Bill McBride on 11/28/2018 07:00:00 AM

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

Mortgage applications increased 5.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 23, 2018. This week’s results include an adjustment for the Thanksgiving holiday.

... The Refinance Index increased 1 percent from the previous week. The seasonally adjusted Purchase Index increased 9 percent from one week earlier. The unadjusted Purchase Index decreased 28 percent compared with the previous week and was 2 percent higher than the same week one year ago.
...
“After several weeks of market volatility, 30-year fixed mortgage rates decreased four basis points to 5.12 percent last week. Homebuyers responded, with purchase applications 1.7 percent higher than a year ago, and after adjusting for the Thanksgiving holiday, they increased almost 9 percent from the previous week,” said Mike Fratantoni, MBA’s Chief Economist. “The rise in purchase activity was led by conventional purchase applications, which surged almost 12 percent, while government purchases were essentially unchanged over the week. This also pushed the average loan size for purchase applications higher, which likely meant there were fewer first-time homebuyers in the market last week.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) decreased to 5.12 percent from 5.16 percent, with points decreasing to 0.46 from 0.48 (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, November 27, 2018

Wednesday: New Home Sales, GDP, Fed Chair Powell, Richmond Fed Mfg Survey

by Bill McBride on 11/27/2018 06:59:00 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, 3nd quarter 2018 (Second estimate). The consensus is that real GDP increased 3.5% annualized in Q3, unchanged from the advance estimate of GDP.

• At 10:00 AM, New Home Sales for October from the Census Bureau. The consensus is for 575 thousand SAAR, up from 553 thousand in September.

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

• At 12:00 PM, Speech by Fed Chair Jerome Powell, The Federal Reserve's Framework for Monitoring Financial Stability, At The Economic Club of New York Signature Luncheon, New York, New York

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

by Bill McBride on 11/27/2018 03:33:00 PM

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

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 10.8% above the previous bubble peak. However, in real terms, the National index (SA) is still about 8.5% below the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is still 12.4% below the bubble peak.

The year-over-year increase in prices has slowed to 5.5% nationally, and will probably slow more as inventory picks up.

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 $286,000 today adjusted for inflation (43%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Nominal House Prices

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

In nominal terms, the Case-Shiller National index (SA)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 January 2005 levels, and the Composite 20 index is back to June 2004.

In real terms, house prices are at 2004/2005 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 late 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 11/27/2018 01:30:00 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 September 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.

Black Knight: National Mortgage Delinquency Rate Decreased in October

by Bill McBride on 11/27/2018 11:18:00 AM

From Black Knight: Black Knight’s First Look: Mortgage Delinquencies Rebound Strongly in October; Number of Seriously Past-Due Loans Falls Below 500,000 for First Time Since 2006

• After rising sharply in September, mortgage delinquencies fell by 8.2 percent in October and are now down by nearly 18 percent from the same time last year

• Serious delinquencies – loans 90 or more days past due – fell by 14,000 from last month and 90,000 from last October to hit a more than 12-year low

• Improvements in hurricane-related delinquencies associated with Harvey and Irma – which spiked in late 2017 – are contributing to the strong year-over-year improvements

• Despite foreclosure starts seeing a monthly increase from September’s nearly 18-year low, the number of loans in active foreclosure fell slightly from September and has decreased by 24 percent from last year

• Prepayment activity – now driven primarily by housing turnover – climbed 14 percent, but remains 29 percent below last year’s level
According to Black Knight's First Look report for October, the percent of loans delinquent decreased 8.2% in October compared to September, and decreased 17.9% year-over-year.

The percent of loans in the foreclosure process decreased 0.5% in October and were down 24.2% 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 3.64% in October, down from 3.97% in September.

The percent of loans in the foreclosure process decreased slightly in October to 0.52% from 0.52% in September.

The number of delinquent properties, but not in foreclosure, is down 378,000 properties year-over-year, and the number of properties in the foreclosure process is down 81,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  Oct
2018
Sept
2018
Oct
2017
Oct
2016
Delinquent3.64%3.97%4.44%4.35%
In Foreclosure0.52%0.52%0.68%0.99%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:1,884,0002,049,0002,262,0002,202,000
Number of properties in foreclosure pre-sale inventory:267,000268,000348,000504,000
Total Properties2,152,0002,317,0002,610,0002,706,000

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

by Bill McBride on 11/27/2018 09:10:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for September ("September" is a 3 month average of July, August and September 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: Annual Home Price Gains Slow According to the 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 5.5% annual gain in September, down from 5.7% in the previous month. The 10City Composite annual increase came in at 4.8%, down from 5.2% in the previous month. The 20-City Composite posted a 5.1% year-over-year gain, down from 5.5% in the previous month.

Las Vegas, San Francisco and Seattle reported the highest year-over-year gains among the 20 cities. In September, Las Vegas led the way with a 13.5% year-over-year price increase, followed by San Francisco with a 9.9% increase and Seattle with an 8.4% increase. Four of the 20 cities reported greater price increases in the year ending September 2018 versus the year ending August 2018.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.1% in September. The 10-City and 20-City Composites did not report any gains for the month. After seasonal adjustment, the National Index recorded a 0.4% month-over-month increase in September. The 10-City Composite and the 20-City Composite both posted 0.3% month-over-month increases. In September, nine of 20 cities reported increases before seasonal adjustment, while 18 of 20 cities reported increases after seasonal adjustment.

“Home prices plus data on house sales and construction confirm the slowdown in housing,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The S&P CoreLogic Case-Shiller National Index showed a 5.5% year-over-year gain, weaker for the second month in a row as 16 of 20 cities showed smaller annual price gains. On a monthly basis, nine cities saw prices decline in September compared to August. In Seattle, where prices were rising at doubledigit annual rates a few months ago, prices dropped last month. The few places reporting larger gains including some of the cities which had the biggest gains and largest losses 10 years ago: Las Vegas, Phoenix and Tampa.

“Sales of both new and existing single family homes peaked one year ago in November 2017. Sales of existing homes are down 9.3% from that peak. Housing starts are down 8.7% from November of last year. The National Association of Home Builders sentiment index dropped seven points to 60, its lowest level in two years. One factor contributing to the weaker housing market is the recent increase in mortgage rates. Currently the national average for a 30-year fixed rate loan is 4.9%, a full percentage point higher than a year ago.”
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 slightly from the bubble peak, and up 0.3% in September (SA).

The Composite 20 index is 2.8% above the bubble peak, and up 0.3% (SA) in September.

The National index is 10.8% above the bubble peak (SA), and up 0.4% (SA) in September.  The National index is up 49.8% from the post-bubble low set in December 2011 (SA).

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

The Composite 10 SA is up 4.8% compared to September 2017.  The Composite 20 SA is up 5.2% year-over-year.

The National index SA is up 5.5% 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.

Monday, November 26, 2018

Tuesday: Case-Shiller House Prices

by Bill McBride on 11/26/2018 09:14:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Still On Vacation

Mortgage rates began the post-holiday week by holding the same sideways posture seen last week during the slow market days surrounding Thanksgiving. Generally speaking, slow market days make for limited mortgage rate movement. [30YR FIXED - 4.875-5.0%]
emphasis added
Tuesday:
• At 9:00 AM ET, S&P/Case-Shiller House Price Index for September. The consensus is for a 5.3% year-over-year increase in the Comp 20 index for September.

• At 9:00 AM, FHFA House Price Index for September 2018. This was originally a GSE only repeat sales, however there is also an expanded index.

Q4 GDP Forecasts; Mid-2s

by Bill McBride on 11/26/2018 05:36:00 PM

From Merrill Lynch:

We look for 3Q GDP growth to be revised slightly lower to 3.4% qoq saar in the second release next week. We continue to track 2.7% for 4Q. [Nov 21 estimate].
emphasis added
From Goldman Sachs:
[W]e lowered our Q4 GDP tracking estimate by one tenth to +2.4% (qoq ar) [Nov 21 estimate]
And from the Altanta Fed: GDPNow
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2018 is 2.5 percent on November 21 [Nov 21 estimate]
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast for 2018:Q4 stands at 2.5%. [Nov 23 estimate]
CR Note: These early estimates suggest GDP in the mid-2s for Q4.   Based on these estimates for Q4, 2018 annual GDP would be around 2.9%, and Q4 over Q4 around 3.1%.   In line with most forecasts at the beginning of the year.

Hotels: Occupancy Rate Increased Year-over-year

by Bill McBride on 11/26/2018 01:39:00 PM

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

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

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

Occupancy: +0.6% to 66.6%
• Average daily rate (ADR): +2.5 to US$127.53
• Revenue per available room (RevPAR): +3.1% to US$84.99

Houston, Texas, registered the steepest declines in occupancy (-17.3% to 66.5%) and RevPAR (-23.3% to US$71.92).
emphasis added
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, blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

This is the fourth strong year in a row for hotel occupancy.  The occupancy rate, year-to-date, is just ahead of the record year in 2017.

Seasonally, the occupancy rate will now decline through the end of the year.

Data Source: STR, Courtesy of HotelNewsNow.com

Dallas Fed: "Texas Manufacturing Expansion Continues to Moderate"

by Bill McBride on 11/26/2018 10:39:00 AM

From the Dallas Fed: Texas Manufacturing Expansion Continues to Moderate

Texas factory activity continued to expand in November, albeit at a markedly slower pace, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, remained positive but fell nine points to 8.4, indicating output growth continued to abate.

Other indexes of manufacturing activity also suggested notably slower expansion in November. The survey’s demand indicators—the new orders and growth rate of new orders indexes—declined to 9.7 and 4.8, respectively, representing their lowest readings in 20 months. The capacity utilization index fell six points to 9.4, and the shipments index fell nine points to 7.7, both at their lowest levels in at least 20 months.

Perceptions of broader business conditions remained positive overall but were less optimistic than in October. The general business activity and company outlook indexes posted double-digit declines, coming in at 17.6 and 13.7, respectively. These readings are lower than what has been seen over the past year but still well above long-term averages. The index measuring uncertainty regarding companies’ outlooks rose five points to 12.3, indicating uncertainty was more widespread this month.

Labor market measures suggested continued but slower employment growth and longer workweeks in November. The employment index retreated eight points to 15.9, a level well above average. Twenty-three percent of firms noted net hiring, compared with 7 percent noting net layoffs. The hours worked index edged down to 4.9.
emphasis added
This is a solid reading, but suggests growth is slowing in the Texas region. So far the regional surveys suggest the national ISM index will be solid in November, but probably down from the October reading of 57.7.

Chicago Fed "Index Points to a Slight Increase in Economic Growth in October"

by Bill McBride on 11/26/2018 08:39:00 AM

From the Chicago Fed: Index Points to a Slight Increase in Economic Growth in October

Led by improvements in employment-related indicators, the Chicago Fed National Activity Index (CFNAI) increased to +0.24 in October from +0.14 in September. Only one of the four broad categories of indicators that make up the index increased from September, but three of the four categories made positive contributions to the index in October. The index’s three-month moving average, CFNAI-MA3, ticked up to +0.31 in October from +0.30 in September.
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 slightly above the historical trend in October (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, November 25, 2018

Sunday Night Futures

by Bill McBride on 11/25/2018 06:59:00 PM

Weekend:
Schedule for Week of November 25, 2018

"Is a Recession Coming?"

Oil Prices Down Year-over-year

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

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

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are up 5 and DOW futures are up 47 (fair value).

Oil prices were down sharply over the last week with WTI futures at $50.46 per barrel and Brent at $59.03 per barrel.  A year ago, WTI was at $57, and Brent was at $64 - so WTI oil prices are down 15%, and Brent prices down about 10% year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.54 per gallon. A year ago prices were at $2.50 per gallon, so gasoline prices are up 4 cents per gallon year-over-year.

Climate Change Report

by Bill McBride on 11/25/2018 10:53:00 AM

This is a critical threat and should be a nonpartisan issue.

Here is the Fourth National Climate Assessment. An excerpt on the economic impact:

In the absence of significant global mitigation action and regional adaptation efforts, rising temperatures, sea level rise, and changes in extreme events are expected to increasingly disrupt and damage critical infrastructure and property, labor productivity, and the vitality of our communities. Regional economies and industries that depend on natural resources and favorable climate conditions, such as agriculture, tourism, and fisheries, are vulnerable to the growing impacts of climate change. Rising temperatures are projected to reduce the efficiency of power generation while increasing energy demands, resulting in higher electricity costs. The impacts of climate change beyond our borders are expected to increasingly affect our trade and economy, including import and export prices and U.S. businesses with overseas operations and supply chains. Some aspects of our economy may see slight near-term improvements in a modestly warmer world. However, the continued warming that is projected to occur without substantial and sustained reductions in global greenhouse gas emissions is expected to cause substantial net damage to the U.S. economy throughout this century, especially in the absence of increased adaptation efforts. With continued growth in emissions at historic rates, annual losses in some economic sectors are projected to reach hundreds of billions of dollars by the end of the century—more than the current gross domestic product (GDP) of many U.S. states.

Saturday, November 24, 2018

Schedule for Week of November 25, 2018

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

The key reports this week are October New Home sales, and the second estimate of Q3 GDP.

Other key indicators include Personal Income and Outlays for October and Case-Shiller house prices for September.

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


----- Monday, Nov 26th -----

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

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

----- Tuesday, Nov 27th -----

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

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 5.3% year-over-year increase in the Comp 20 index for September.

9:00 AM: FHFA House Price Index for September 2018. This was originally a GSE only repeat sales, however there is also an expanded index.

----- Wednesday, Nov 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, 3nd quarter 2018 (Second estimate). The consensus is that real GDP increased 3.5% annualized in Q3, unchanged from the advance estimate of GDP.

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

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

The consensus is for 575 thousand SAAR, up from 553 thousand in September.

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

12:00 PM: Speech by Fed Chair Jerome Powell, The Federal Reserve's Framework for Monitoring Financial Stability, At The Economic Club of New York Signature Luncheon, New York, New York

----- Thursday, Nov 29th -----

8:30 AM ET: The initial weekly unemployment claims report will be released.  The consensus is for 218 thousand initial claims, down from 224 thousand the previous week.

8:30 AM: Personal Income and Outlays for October. 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%.

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

2:00 PM: The Fed will release the FOMC Minutes for the Meeting of November 7-8, 2018

----- Friday, Nov 30th -----

9:45 AM: Chicago Purchasing Managers Index for November. The consensus is for a reading of 58.0, down from 58.4 in October.

Friday, November 23, 2018

"Is a Recession Coming?"

by Bill McBride on 11/23/2018 02:46:00 PM

Derek Thompson at The Atlantic asked me about my views on an imminent recession in this excellent overview: Is a Recession Coming?

Thompson concluded:

If you’re going to worry, you should worry about three things: exports, China, and maybe the looming shadow of corporate debt. But nothing in the economy seems to predict an imminent recession.

Or at least that was my conclusion before Bill McBride sent me a follow-up email.

“Just saw Larry Kudlow’s remarks. Maybe I’m wrong!”
For more on the joke about Kudlow, see: Larry Kudlow is usually wrong

Oil Prices Down Year-over-year

by Bill McBride on 11/23/2018 11:37:00 AM

From CNBC: Oil plunges 7% to lowest level in more than a year

Oil prices slumped on Friday to their lowest levels in more than a year, deepening a rapid seven-week sell-off that has plunged crude futures deep into a bear market.

International benchmark Brent crude dropped $3.52, or 5.6 percent, to $59.08 at 10:20 a.m. ET. The contract hit $58.92, its lowest level since Oct. 27, 2017, earlier in the session.

U.S. benchmark West Texas Intermediate crude fell $3.59, or 6.6 percent, to $51.04. WTI briefly slid about 7 percent to $50.60, its weakest price since Oct. 12, 2017.
Oil PricesClick on graph for larger image

The first graph shows WTI and Brent spot oil prices from the EIA. (Prices today added).

According to Bloomberg, WTI is at $50.92 per barrel today, and Brent is at $58.77.

Prices collapsed in 2008 due to the financial crisis, and then increased as the economy recovered.   Oil prices collapsed again in 2014 and 2015, mostly due to oversupply.

Last year oil prices rose sharply again.

Oil Prices The second graph shows the year-over-year change in WTI based on data from the EIA.

Six times since 1987, oil prices have increased 100% or more YoY.  And several times prices have almost fallen in half YoY.   Oil prices are volatile!

Currently WTI is down 10% year-over-year.

Although the U.S. is still a net importer of oil, oil production has increased significantly in the U.S..  Declining oil prices negatively impact certain regions and segments (like heavy truck sales).

Thursday, November 22, 2018

Five Economic Reasons to be Thankful

by Bill McBride on 11/22/2018 08:31:00 AM

With a Hat Tip to Neil Irwin (he started doing this several years ago) ... here are five economic reasons to be thankful this Thanksgiving ...

1) Low unemployment rate.

The unemployment rate declined to 3.7% in October.  The unemployment rate is down from 4.1% in October 2017 (a year ago), and is down from the cycle peak of 10.0% in October 2009.

unemployment rateClick on graph for larger image.

This is the lowest level for the unemployment rate since 1969!

Also, this is the largest decline in the unemployment rate, from cycle peak-to-trough, since the BLS started tracking the unemployment rate in 1948.  (In the early '80s, the unemployment rate declined from 10.8% to 5.0%; a decline of 5.8 percentage points.  The current decline from 10.0% to 3.7% is 6.3 percentage points!)

2) Low unemployment claims.

The number of new claims for unemployment insurance benefits is close to the lowest level since the 1960s (with a much smaller population back then).  The four week average of new unemployment has fallen to 218,000, down from 240,000 a year ago, and down from the peak of 660,000 during the great recession.

Here is a graph of initial weekly unemployment claims.

The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims is at 218,500.

The low level of claims suggests relatively few layoffs.

3) Job Openings Near Series High.

There were 7.0 million job openings in September. This is close to the series high of 7.29 million in August 2018.

Job Openings and Labor Turnover Survey This graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

For the sixth consecutive month, there were more job openings than people unemployed. Also note that the number of job openings has exceeded the number of hires since January 2015 (almost 4 years).

Also Quits are up 11% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

More job openings, and rising quits, are positive signs for the labor market.

4) Wages have been increasing at a faster rate.

Wages CES, Nominal and RealThis graph is based on “Average Hourly Earnings” from the Current Employment Statistics (CES) (aka "Establishment") monthly employment report. Note: There are also two quarterly sources for earnings data: 1) “Hourly Compensation,” from the BLS’s Productivity and Costs; and 2) the Employment Cost Index which includes wage/salary and benefit compensation.

The graph shows the nominal year-over-year change in "Average Hourly Earnings" for all private employees.  Nominal wage growth was at 3.1% YoY in October.

Wage growth has generally been trending up for several years.

5) Household Debt burdens are near record lows.

Household debt burdens have declined sharply since the great recession.

The Household debt service ratio was at 13.2% in 2007, and has fallen to a series low of 9.84% in Q2 2018 (most recent data).

Financial ObligationsThe graph, based on data from the Federal Reserve, shows the Total Debt Service Ratio (DSR), and the DSR for mortgages (blue) and consumer debt (yellow).

The overall Debt Service Ratio decreased in Q2 2018, and has been moving sideways and is at a series low.  Note: The financial obligation ratio (FOR) was declined in Q2 and is also near a series low (not shown).

The DSR for mortgages (blue) is also at a series low (since at least 1980).  This ratio increased rapidly during the housing bubble, and continued to increase until 2007.

This data suggests aggregate household cash flow has improved.

Happy Thanksgiving to All!

Wednesday, November 21, 2018

Philly Fed: State Coincident Indexes increased in 42 states in October

by Bill McBride on 11/21/2018 03:06:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for October 2018. Over the past three months, the indexes increased in 43 states, decreased in four states, and remained stable in three, for a three-month diffusion index of 78. In the past month, the indexes increased in 42 states, decreased in five states, and remained stable in three, for a one-month diffusion index of 74.
emphasis added
Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:
The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing by production workers, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.
Philly Fed State Conincident Map Click on map for larger image.

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

The map is mostly green on a three month basis, but there are some red states.

Source: Philly Fed.

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

Philly Fed Number of States with Increasing ActivityAnd here is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In October, 44 states had increasing activity (including minor increases).

Comments on October Existing Home Sales

by Bill McBride on 11/21/2018 12:23:00 PM

Earlier: NAR: Existing-Home Sales Increased to 5.22 million in October

Two key points:

1) The key for the housing - and the overall economy - is new home sales, single family housing starts and overall residential investment. Overall this is a reasonable level for existing home sales, and the recent weakness is no surprise given the increase in mortgage rates.

2) Inventory is still low, but was up 2.8% year-over-year (YoY) in October. This was the third consecutive year-over-year increase in inventory, and the largest YoY increase since late 2014.

Existing Home Inventory NSAClick on graph for larger image.

The current slight YoY increase in inventory is nothing like what happened in 2005 and 2006. In 2005 (see red arrow), inventory kept increasing all year, and that was a sign the bubble was ending.

Although I expect inventory to increase YoY in 2018, I expect inventory to follow the normal seasonal pattern (not keep increasing all year).

Also inventory levels remains low, and could increase much more and still be at normal levels. No worries.

Existing Home Sales NSAThe second graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA in October (446,000, red column) were below sales in October 2017 (458,000, NSA), but were the second highest since the housing bubble.

Sales NSA through October (first ten months) are down about 2.1% from the same period in 2017.

This is a small YoY decline in sales to-date - it is likely that higher mortgage rates are impacting sales, and it is possible there has been an impact from the changes to the tax law (eliminating property taxes write-off, etc).

NAR: Existing-Home Sales Increased to 5.22 million in October

by Bill McBride on 11/21/2018 10:11:00 AM

From the NAR: Existing-Home Sales Increase for the First Time in Six Months

Existing-home sales increased in October after six straight months of decreases, according to the National Association of Realtors®. Three of four major U.S. regions saw gains in sales activity last month.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 1.4 percent from September to a seasonally adjusted rate of 5.22 million in October. Sales are now down 5.1 percent from a year ago (5.5 million in October 2017).
...
Total housing inventory at the end of October decreased from 1.88 million in September to 1.85 million existing homes available for sale, but that represents an increase from 1.80 million a year ago. Unsold inventory is at a 4.3-month supply at the current sales pace, down from 4.4 last month and up from 3.9 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 October (5.2 million SAAR) were up 1.4% from last month, but were 5.1% below the October 2017 rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory decreased to 1.85 million in October from 1.88 million in September.   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 was up 2.8% year-over-year in October compared to October 2017.  

Months of supply was at 4.3 months in October.

For existing home sales, a key number is inventory - and inventory is still low, but appears to have bottomed. I'll have more later ...

Weekly Initial Unemployment Claims increased to 224,000

by Bill McBride on 11/21/2018 08:33:00 AM

The DOL reported:

In the week ending November 17, the advance figure for seasonally adjusted initial claims was 224,000, an increase of 3,000 from the previous week's revised level. The previous week's level was revised up by 5,000 from 216,000 to 221,000. The 4-week moving average was 218,500, an increase of 2,000 from the previous week's revised average. The previous week's average was revised up by 1,250 from 215,250 to 216,500.
emphasis added
The previous week was revised up.

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

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 218,500.

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

MBA: Mortgage Applications Decreased Slightly in Latest Weekly Survey

by Bill McBride on 11/21/2018 07:00:00 AM

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

Mortgage applications decreased 0.1 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending November 16, 2018. This week’s results do not include an adjustment for the Veterans’ Day holiday.

... The Refinance Index decreased 5 percent from the previous week to its lowest level since December 2000. The seasonally adjusted Purchase Index increased 3 percent from one week earlier. The unadjusted Purchase Index decreased 1 percent compared with the previous week and was 5 percent lower than the same week one year ago.
...
“Treasury rates declined last week, as equity markets continued to see large swings amidst investor concerns over global economic growth. As a result, mortgage rates inched back across most loan types, including the 15-year fixed-rate mortgage, 5/1 ARM, and 30-year jumbo mortgage rate. The 30-year fixed rate mortgage also declined, stopping a run of six straight weekly increases,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Mortgage applications saw mixed results last week. Purchase applications increased to their highest level in five weeks, but despite the pause in rates, refinance activity dropped again and remained at its lowest level since 2000.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) decreased to 5.16 percent from 5.17 percent, with points decreasing to 0.48 from 0.55 (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 down 5% year-over-year.

Tuesday, November 20, 2018

Wednesday: Existing Home Sales, Unemployment Claims, Durable Goods

by Bill McBride on 11/20/2018 09:50:00 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, The initial weekly unemployment claims report will be released.  The consensus is for 213 thousand initial claims, down from 216 thousand the previous week.

• Also at 8:30 AM: Durable Goods Orders for October from the Census Bureau. The consensus is for a 2.4% decrease in durable goods orders.

• At 10:00 AM, Existing Home Sales for October from the National Association of Realtors (NAR). The consensus is for 5.20 million SAAR, up from 5.15 million. Housing economist Tom Lawler estimates the NAR will reports sales of 5.31 million SAAR for October and that inventory will be up 2.8% year-over-year.  Take the over.

• At 10:00 AM, University of Michigan's Consumer sentiment index (Final for November). The consensus is for a reading of 98.3.

Housing Inventory Tracking

by Bill McBride on 11/20/2018 05:08:00 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 1.1% year-over-year (YoY) in September, this was the second consecutive YoY increase, following over three years of YoY declines.

The graph below shows the YoY change for non-contingent inventory in Houston, Las Vegas, Sacramento, and Phoenix (through October) and total existing home inventory as reported by the NAR (through September, October will be released tomorrow).  (I'll be adding more areas).

Click on graph for larger image.

The black line is the year-over-year change in inventory as reported by the NAR.

Note that inventory was up 52% YoY in Las Vegas in October (red), the fourth consecutive month with a YoY increase.

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 was up 7% year-over-year in Houston in October.

Inventory is a key for the housing market, and I am watching inventory for the impact of the new tax law and higher mortgage rates on housing.   I expect national inventory will be up YoY at the end of 2018 (but still to be somewhat low).

Also note that inventory in Seattle was up 102% year-over-year in October (not graphed)!

John Burns: Builder Confidence "Feels more like a 50 to me"

by Bill McBride on 11/20/2018 01:57:00 PM

Yesterday the NAHB reported that builder confidence declined sharply to 60 in November from 68 in October.

Here are some interesting comments on confidence via twitter from John Burns, CEO of John Burns Real Estate Consulting (a premier RE consulting firm).

John Burns wrote:

"Our survey of new home buyer traffic and expected new home sales from 200+ of the exact same builders. Green is the last 4 Octobers. Hard to believe NAHB that HMI is a 60. Feels more like a 50 (normal) to me."
Here is the graph that Burns posted:

John Burns Builder ConfidenceClick on graph for larger image.

Comments on October Housing Starts

by Bill McBride on 11/20/2018 10:20:00 AM

Earlier: Housing Starts Increased to 1.228 Million Annual Rate in October

Housing starts in October were slightly below expectations,  however starts for August and September were revised up.  Overall this was close to expectations.

The housing starts report released this morning showed starts were up 1.5% in October compared to September (September starts were revised up), and starts were down 2.9% year-over-year compared to October 2017.

Single family starts were down 2.6% year-over-year.

This first graph shows the month to month comparison for total starts between 2017 (blue) and 2018 (red).

Starts Housing 2017 and 2018Click on graph for larger image.

Starts were down 2.9% in October compared to October 2017.

Through nine months, starts are up 5.6% year-to-date compared to the same period in 2017.   That is a decent increase.

Note that 2017 finished strong, so the year-over-year comparisons are difficult in Q4.

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

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

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

The rolling 12 month total for starts (blue line) increased steadily for several years following the great recession - but turned down, and has moved sideways recently.  Completions (red line) had lagged behind - however completions and starts are at about the same level now (more deliveries). 

It is likely that both starts and completions, on rolling 12 months basis, will now move mostly sideways.

As I've been noting for a few years, the significant growth in multi-family starts is behind us - multi-family starts peaked in June 2015 (at 510 thousand SAAR).

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

Note the relatively low level of single family starts and completions.  The "wide bottom" was what I was forecasting following the recession, and now I expect further of increases in single family starts and completions.