Friday, May 31, 2019

"Mortgage Rates Drop Well Into the High 3's"

by Calculated Risk on 5/31/2019 06:50:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Drop Well Into the High 3's

Mortgage rates were decisively lower today, following a massive market movement on news of new tariffs to be imposed on Mexico. In general, trade wars are economically negative. They hurt stocks and help bonds. When bonds are improving, it means bond prices are rising and yields (another word for "rates") are falling.

The average lender improved by the biggest amount of the past several weeks with top tier scenarios now easily seeing quotes of 3.875%. [30YR FIXED - 3.875% - 4.0%]
CR Note: The decline in mortgage rates - from around 5% late last year, to under 4% now - is a positive for new home sales.

Fannie Mae: Mortgage Serious Delinquency Rate Decreased in April, Lowest Since August 2007

by Calculated Risk on 5/31/2019 04:17:00 PM

Fannie Mae reported that the Single-Family Serious Delinquency rate decreased to 0.72% in April, from 0.74% in March. The serious delinquency rate is down from 1.09% in April 2018.

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 August 2007.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

By vintage, for loans made in 2004 or earlier (3% of portfolio), 2.64% are seriously delinquent. For loans made in 2005 through 2008 (4% of portfolio), 4.45% are seriously delinquent, For recent loans, originated in 2009 through 2018 (93% of portfolio), only 0.33% are seriously delinquent. So Fannie is still working through a few 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 0.4 to 0.6 percent or so to a cycle bottom.

Note: Freddie Mac reported earlier.

Still Not on Recession Watch

by Calculated Risk on 5/31/2019 02:47:00 PM

Several readers have asked me if I'm on "recession watch".

The answer is no.

First, a slow growth economy is not a recession.  Since the Great Recession ended in 2009, we've seen several mini-slowdowns and even a few random quarters of negative GDP growth (but employment and other indicators stayed positive).

Second, the tariffs on goods from China should not have a huge negative impact on U.S. GDP, however the announced tariffs on goods from Mexico appear more significant.   I'm relying on the analysis of others to estimate the size of the negative impact, but it doesn't appear large enough to drag the economy into recession.   This could have a significant impact on the auto industry.

A key positive is that lower mortgage rates, and solid employment growth should be supportive of housing.

Note: In my ten questions for 2019, I listed trade wars as a key downside risk (along with other administration policies).  

Hotels: Occupancy Rate Increased Year-over-year

by Calculated Risk on 5/31/2019 12:41:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 25 May

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 19-25 May 2019, according to data from STR.

In comparison with the week of 20-26 May 2018, the industry recorded the following:

Occupancy: +0.9% to 71.2%
• Average daily rate (ADR): +2.1% to US$133.81
• Revenue per available room (RevPAR): +3.1% to US$95.22
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 2019, dash light blue is 2018, blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

Occupancy is solid in 2019, close - to-date - compared to the previous 4 years.

Seasonally, the occupancy rate will mostly move sideways for several more weeks, and then increase during the Summer travel season.

Data Source: STR, Courtesy of HotelNewsNow.com

Q2 GDP Forecasts: mid-1% Range

by Calculated Risk on 5/31/2019 11:18:00 AM

From Merrill Lynch:

The data bumped up our 2Q GDP tracking estimate by 0.2pp to 1.8% qoq saar. [May 31 estimate]
emphasis added
From Goldman Sachs:
We lowered our Q2 GDP tracking estimate by two tenths to +1.1% (qoq ar). [Updated: May 30 estimate]
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast stands at 1.5% for 2019:Q2. News from this week's data releases increased the nowcast for 2019:Q2 by 0.1 percentage point. [May 31 estimate].
And from the Altanta Fed: GDPNow
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2019 is 1.2 percent on May 31, down from 1.3 percent on May 24. A slight increase in the nowcast of the contribution of personal consumption expenditures to second-quarter real GDP growth from 1.99 percentage points to 2.03 percentage points after this morning’s personal income and outlays report from the U.S. Bureau of Economic Analysis was more than offset by a decline in the nowcast of second-quarter real nonresidential equipment investment growth from 0.7 percent to -1.4 percent after yesterday’s and today’s economic releases. [May 31 estimate]
CR Note: These early estimates suggest real GDP growth will be in the 1% to 2% range annualized in Q2.

Personal Income Increased 0.5% in April, Real PCE declined slightly

by Calculated Risk on 5/31/2019 08:36:00 AM

The BEA released the Personal Income and Outlays, April 2019:

Personal income increased $92.8 billion (0.5 percent) in April according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $69.3 billion (0.4 percent) and personal consumption expenditures (PCE) increased $40.8 billion (0.3 percent).

Real DPI increased 0.1 percent in April and Real PCE decreased less than 0.1 percent. The PCE price index increased 0.3 percent. Excluding food and energy, the PCE price index increased 0.2 percent.
The increases in personal income and spending were above expectations.   However real PCE declined slightly in April.

Core PCE was up 1.6% YoY in April (compared to 1.5% in March)

Thursday, May 30, 2019

Friday: Personal Income and Outlays, Chicago PMI

by Calculated Risk on 5/30/2019 07:44:00 PM

Friday:
• At 8:30 AM ET, Personal Income and Outlays, April 2019. The consensus is for a 0.3% increase in personal income, and for a 0.2% increase in personal spending. And for the Core PCE price index to increase 0.2%.

• At 9:45 AM, Chicago Purchasing Managers Index for May.

• At 10:00 AM, University of Michigan's Consumer sentiment index (Final for May). The consensus is for a reading of 101.0.

May Vehicle Sales Forecast: "Sales Slow, Discounts Rise"

by Calculated Risk on 5/30/2019 05:21:00 PM

From JD Power: Sales Slow, Discounts Rise—But Average Prices Break Records

New-vehicle retail sales in May are expected to fall from a year ago, according to a forecast developed jointly by J.D. Power and LMC Automotive. Retail sales are projected to reach 1,226,800 units, a 3.1% decrease compared with May 2018. The seasonally adjusted annualized rate (SAAR) for retail sales is expected to be 13.5 million units, down nearly 200,000 from a year ago.

May will be the fifth consecutive month in 2019 to experience a sales decline, with calendar year-to-date sales through May expected to be down 5.2% compared with the same period in 2018.

Total sales in May are projected to reach 1,558,800 units, a 2.1% decrease compared with May 2018. The seasonally adjusted annualized rate (SAAR) for total sales is expected to be 17.0 million units, down 200,000 from a year ago.

“May is one of the highest volume months of the year and its performance typically indicates how the year will play out. The expected sales decline in May, coupled with weak sales year-to-date has left the industry with rising inventories of unsold vehicles. Manufacturers are responding with larger discounts to take advantage of the Memorial Day weekend which is one of the busiest car-buying periods of the year.”
emphasis added
This forecast is for sales to be up from April, but down from 17.2 million SAAR in May 2018.

Merrill on May NFP: "A modest slowing in employment activity"

by Calculated Risk on 5/30/2019 12:29:00 PM

A few excerpts from a Merrill Lynch research note:

We forecast nonfarm payroll employment growth of 180k in the May Bureau of Labor Statistics (BLS) employment report … If our nonfarm payrolls forecast proves correct, it would suggest a modest slowing in employment activity in May ...

We see reasons for some slowing in employment activity in May. The latest escalation of trade tensions... Also, the cyclical slowdown in the auto sector.

Elsewhere, we expect the unemployment rate to be unchanged at 3.6%

NAR: "Pending Home Sales Trail Off 1.5% in April"

by Calculated Risk on 5/30/2019 10:05:00 AM

From the NAR: Pending Home Sales Trail Off 1.5% in April

Pending home sales declined in April, a modest change from the growth seen a month before, according to the National Association of Realtors®. Only one of the four major regions – the Midwest – experienced growth, while the remaining three regions reported a drop in their respective contract activity.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 1.5% to 104.3 in April, down from 105.9 in March. Year-over-year contract signings declined 2.0%, making this the 16th straight month of annual decreases.
...
The PHSI in the Northeast declined 1.8% to 88.9 in April and is now 2.1% below a year ago. In the Midwest, the index grew 1.3% to 96.8 in April, 2.4% lower than April 2018.

Pending home sales in the South fell 2.5% to an index of 124.0 in April, which is 1.8% lower than last April. The index in the West dropped 1.8% in April to 93.5 and fell only 1.5% below a year ago.
emphasis added
This was below expectations of a 0.3% 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 May and June.

Weekly Initial Unemployment Claims Increase to 215,000

by Calculated Risk on 5/30/2019 08:39:00 AM

The DOL reported:

In the week ending May 25, the advance figure for seasonally adjusted initial claims was 215,000, an increase of 3,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 211,000 to 212,000. The 4-week moving average was 216,750, a decrease of 3,750 from the previous week's revised average. The previous week's average was revised up by 250 from 220,250 to 220,500.
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 decreased to 216,750.

This was below the consensus forecast.

Q1 GDP Revised Down to 3.1% Annual Rate

by Calculated Risk on 5/30/2019 08:35:00 AM

From the BEA: Gross Domestic Product, 1st quarter 2019 (second estimate); Corporate Profits, 1st quarter 2019 (preliminary estimate)

Real gross domestic product (GDP) increased at an annual rate of 3.1 percent in the first quarter of 2019, according to the "second" estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.2 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 in the first quarter was 3.2 percent. Today's estimate reflects downward revisions to nonresidential fixed investment and private inventory investment and upward revisions to exports and personal consumption expenditures (PCE). Imports, which are a subtraction in the calculation of GDP, were revised up; the general picture of economic growth remains the same
emphasis added
PCE growth was revised up from 1.2% to 1.3%. Residential investment was revised down from -2.8% to -3.5%. This was close to the consensus forecast.

Here is a Comparison of Second and Advance Estimates.

Wednesday, May 29, 2019

Thursday: GDP, Unemployment Claims, Pending Home Sales

by Calculated Risk on 5/29/2019 09:01:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 215 thousand initial claims, up from 211 thousand last week.

• At 8:30 AM, Gross Domestic Product, 1st quarter 2019 (Second estimate). The consensus is that real GDP increased 3.0% annualized in Q2, down from the advance estimate of 3.2%.

• At 10:00 AM, Pending Home Sales Index for April. The consensus is for a 0.3% increase in the index.

Zillow Case-Shiller Forecast: Slower YoY Price Gains in April

by Calculated Risk on 5/29/2019 03:01:00 PM

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

From Matthew Speakman at Zillow: March Case-Shiller Results and April Forecast: Home Buyers Hitting a Breaking Point?

Looking ahead, Zillow’s April Case-Shiller forecast is for continued modest slowdowns in annual home price growth across all three major indices. Annual U.S. home price growth is expected to fall to 3.6%.
The Zillow forecast is for the year-over-year change for the Case-Shiller National index to be at 3.6% in April, lower than in March.

Zillow forecast for Case-ShillerThe Zillow forecast is for the 20-City index to decline to 2.4% YoY in April, and for the 10-City index to decline to 2.2% YoY.

Freddie Mac: Mortgage Serious Delinquency Rate Decreased in April

by Calculated Risk on 5/29/2019 12:14:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate in April was 0.65%, down from 0.67% in March. Freddie's rate is down from 0.94% in April 2018.

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

This is the lowest serious delinquency rate for Freddie Mac since December 2007.

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

I expect the delinquency rate to decline to a cycle bottom in the 0.4% to 0.6% range - so this is close to a bottom.

Note: Fannie Mae will report for April soon.

Richmond Fed: "Fifth District Manufacturing Was Moderate in May"

by Calculated Risk on 5/29/2019 10:05:00 AM

From the Richmond Fed: Fifth District Manufacturing Was Moderate in May

Fifth District manufacturing activity was moderate in May, according to the most recent survey from the Federal Reserve Bank of Richmond. The composite index inched up from 3 in April to 5 in May, as shipments and new orders had fairly flat reading and the third component, employment, remained positive. Firms reported growth in spending and positive overall business conditions and remained optimistic about growth in the coming months.

Survey results indicated that employment and wages grew in May, while the indicator for average workweek recovered from its negative April reading. However, firms continued to struggle to find workers with the necessary skills as this index dropped from −8 in April to −20 in May. Respondents expected this struggle to continue but to see further growth in employment and wages in the next six months.
emphasis added
This was the last of the regional Fed surveys for May.

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

The surveys were mixed in May, but based on these regional surveys, it seems likely the ISM manufacturing index will be at a higher level in May than in April.

MBA: Mortgage Applications Decreased in Latest Weekly Survey

by Calculated Risk on 5/29/2019 07:00:00 AM

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

Mortgage applications decreased 3.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 24, 2019.

... The Refinance Index decreased 6 percent from the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 7 percent higher than the same week one year ago.
...
“Concerns over European economic growth and ongoing uncertainty about a trade war with China were some of the main factors that kept mortgage rates low last week. Even with lower rates on three of the five surveyed loan types, refinance activity fell 6 percent, essentially reversing an 8 percent increase the week before,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Purchase applications decreased for the third straight week, but remained more than 7 percent higher than a year ago. It is possible that the trade dispute is causing potential homeowners to hold off on buying, with the fear that further escalation – or the lack of resolution – may have adverse impacts on the economy and housing market.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) remained unchanged from 4.33 percent, with points decreasing to 0.42 from 0.43 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance IndexClick on graph for larger image.


The first graph shows the refinance index since 1990.

Once mortgage rates fell more than 50 bps from the highs of last year, a number of recent buyers were able to refinance.  But it would take another significant decrease in rates to see a further increase in refinance activity.

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

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

Tuesday, May 28, 2019

Wednesday: Richmond Fed Mfg Survey

by Calculated Risk on 5/28/2019 09:34:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Are Great, But They Could Be Greater

The world of mortgage rate analysis is both simple and complicated. On a simple note, rates are near long-term lows and they'll generally continue to follow the broader market for interest rates (which is largely based on US Treasuries, domestically). …

The biggest issue--and the one that's most difficult to explain in simple terms--is that mortgages have not been doing a good job of keeping pace with Treasury yields lately.  [30YR FIXED - 4.0% - 4.125%]
emphasis added
Wednesday:
• At 7:00 AM ET, The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

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

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

by Calculated Risk on 5/28/2019 03:49:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 3.7% year-over-year in March

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 12.6% above the previous bubble peak. However, in real terms, the National index (SA) is still about 7.9% below the bubble peak (and historically there has been an upward slope to real house prices).  The composite 20, in real terms, is still 14.7% below the bubble peak.

The year-over-year increase in prices has slowed to 3.7% nationally, and I expect price growth will slow a little more.

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 $287,000 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 March) 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 October 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 Calculated Risk on 5/28/2019 12:09:00 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 March 2019).   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.

Dallas Fed: "Texas Manufacturing Expansion Continues but Pace Slows"

by Calculated Risk on 5/28/2019 10:36:00 AM

From the Dallas Fed: Texas Manufacturing Expansion Continues but Pace Slows

Texas factory activity continued to expand in May, albeit at a slower pace, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, fell six points to 6.3, indicating output growth decelerated from April.

Most other measures of manufacturing activity also suggested slower expansion in May. The survey’s demand indicators fell but remained positive: The new orders index slipped seven points to 2.4, and the growth rate of orders index moved down from 5.2 to 1.1. The capacity utilization index fell to 7.7 from a seven-month high of 15.6 in April. Meanwhile, the shipments index edged up to 7.6.

Perceptions of broader business conditions exhibited some weakness in May. The general business activity index turned negative and reached a year-to-date low of -5.3. The company outlook index dipped into negative territory for the first time this year, coming in at -1.7. The index measuring uncertainty regarding companies’ outlooks jumped nine points to 16.1, its highest reading since last September. More than a quarter of firms said uncertainty increased this month.

Labor market measures suggested stronger employment growth and longer workweeks in May. The employment index rebounded from its April dip, rising seven points to 11.6.
emphasis added
This was the worst reading for the general activity index since 2016.

Case-Shiller: National House Price Index increased 3.7% year-over-year in March

by Calculated Risk on 5/28/2019 09:10:00 AM

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

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

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

From S&P: S&P CoreLogic Case-Shiller Index Shows Annual Home Price Gains Continue to Weaken

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 3.7% annual gain in March, down from 3.9% in the previous month. The 10-City Composite annual increase came in at 2.3%, down from 2.5% in the previous month. The 20-City Composite posted a 2.7% year-over-year gain, down from 3.0% in the previous month.

Las Vegas, Phoenix and Tampa reported the highest year-over-year gains among the 20 cities. In March, Las Vegas led the way with an 8.2% year-over-year price increase, followed by Phoenix with a 6.1% increase, and Tampa with a 5.3% increase. Four of the 20 cities reported greater price increases in the year ending March 2019 versus the year ending February 2019.
...
Before seasonal adjustment, the National Index posted a month-over-month increase of 0.6% in March. The 10-City and 20-City Composites both reported 0.7% increases for the month. After seasonal adjustment, the National Index recorded a 0.3% month-over-month increase in March. The 10-City and 20-City Composites both posted 0.1% month-over-month increases. In March, 19 of 20 cities reported increases before seasonal adjustment, while 14 of 20 cities reported increases after seasonal adjustment.

“Home price gains continue to slow,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “The patterns seen in the last year or more continue: year-over-year price gains in most cities are consistently shrinking. Double-digit annual gains have vanished. The largest annual gain was 8.2% in Las Vegas; one year ago, Seattle had a 13% gain. In this report, Seattle prices are up only 1.6%. The 20-City Composite dropped from 6.7% to 2.7% annual gains over the last year as well. The shift to smaller price increases is broad-based and not limited to one or two cities where large price increases collapsed.
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 up slightly from the bubble peak, and up 0.1% in March (SA).

The Composite 20 index is 4.2% above the bubble peak, and up 0.1% (SA) in March.

The National index is 12.6% above the bubble peak (SA), and up 0.3% (SA) in March.  The National index is up 52.3% 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 2.3% compared to March 2018.  The Composite 20 SA is up 2.6% year-over-year.

The National index SA is up 3.7% year-over-year.

Note: According to the data, prices increased in 15 of 20 cities month-over-month seasonally adjusted.

I'll have more later.

Tuesday: Case-Shiller House Prices

by Calculated Risk on 5/28/2019 12:11:00 AM

Tuesday:
• At 9:00 AM, S&P/Case-Shiller House Price Index for March. The consensus is for a 2.5% year-over-year increase in the Comp 20 index for March.

• At 9:00 AM, FHFA House Price Index for March 2019. This was originally a GSE only repeat sales, however there is also an expanded index.

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

Monday, May 27, 2019

The War on Data Continues

by Calculated Risk on 5/27/2019 10:33:00 AM

Three years ago I wrote: The War on Data

Unfortunately the war on data has continued unabated, as Catherine Rampell noted last week in the WaPo: The Trump administration’s war on statistics isn’t slowing down

Don’t like the numbers? Invent new numbers instead.

Or make it harder to collect trustworthy numbers next time.

Or just put the squeeze on the number crunchers themselves.

Slowly but surely, the Trump administration has been chipping away at the independence and integrity of our federal statistical agencies, whose data is critical to keeping our democracy functioning and our economy healthy.

Presumably the Trump administration has calculated that doctoring statistical models, skewing survey results and trying to strong-arm statisticians will serve its near-term political interests. In the long term, however, sowing distrust in government data only reduces the ability of policymakers, businesses and voters to make informed decisions.
There are no "alternative facts", and this war on data should concern everyone - ignoring or misrepresenting data leads to irresponsible comments and poor policy decisions.

Sunday, May 26, 2019

Hotels: Occupancy Rate Increased Year-over-year

by Calculated Risk on 5/26/2019 10:14:00 AM

From HotelNewsNow.com: STR: US hotel results for week ending 18 May

The U.S. hotel industry reported positive year-over-year results in the three key performance metrics during the week of 12-18 May 2019, according to data from STR.

In comparison with the week of 13-19 May 2018, the industry recorded the following:

Occupancy: +0.8% to 70.8%
• Average daily rate (ADR): +1.4% to US$134.36
• Revenue per available room (RevPAR): +2.2% to US$95.13
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 2019, dash light blue is 2018, blue is the median, and black is for 2009 (the worst year probably since the Great Depression for hotels).

A decent start for 2019, close - to-date - compared to the previous 4 years.

Seasonally, the occupancy rate will mostly move sideways for several more weeks, and then increase during the Summer travel season.

Data Source: STR, Courtesy of HotelNewsNow.com

Saturday, May 25, 2019

Schedule for Week of May 26, 2019

by Calculated Risk on 5/25/2019 08:11:00 AM

The key reports this week are the second estimate of Q1 GDP, Case-Shiller house prices, and Personal Income and Outlays for April.

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

----- Monday, May 27th -----

All US markets will be closed in observance of Memorial Day.

----- Tuesday, May 28th -----

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

This graph shows the year-over-year change in the 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 2.5% year-over-year increase in the Comp 20 index for March.

9:00 AM: FHFA House Price Index for March 2019. This was originally a GSE only repeat sales, however there is also an expanded index.

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

----- Wednesday, May 29th -----

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

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

----- Thursday, May 30th -----

8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 215 thousand initial claims, up from 211 thousand last week.

8:30 AM: Gross Domestic Product, 1st quarter 2019 (Second estimate). The consensus is that real GDP increased 3.0% annualized in Q2, down from the advance estimate of 3.2%.

10:00 AM: Pending Home Sales Index for April. The consensus is for a 0.3% increase in the index.

----- Friday, May 31st -----

8:30 AM ET: Personal Income and Outlays, April 2019. The consensus is for a 0.3% increase in personal income, and for a 0.2% increase in personal spending. And for the Core PCE price index to increase 0.2%.

9:45 AM: Chicago Purchasing Managers Index for May.

10:00 AM: University of Michigan's Consumer sentiment index (Final for May). The consensus is for a reading of 101.0.

Friday, May 24, 2019

Oil Prices Down Year-over-year

by Calculated Risk on 5/24/2019 05:24:00 PM

From MarketWatch: Oil futures suffer worst weekly performance of the year

Oil futures settled higher Friday, recouping a portion of recent losses, but a day after posting their biggest one-day loss since December, prices saw their worst weekly performance of the year.

Brent shed 4.6%, while WTI was down by 5.7%, on Thursday — the biggest daily losses since December. The week’s losses for both were also the largest year to date.
Oil Prices Click 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 $59.02 per barrel today, and Brent is at $69.27.

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.

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.

Currently WTI is down 18% year-over-year, but up sharply from the lows at the of 2018.

Oil prices are volatile!

Q2 GDP Forecasts: Mid 1% Range

by Calculated Risk on 5/24/2019 11:25:00 AM

From Merrill Lynch:

We lowered 2Q GDP tracking by 0.2pp to 1.6%, while 1Q remained unchanged at 2.9% [May 24 estimate]
emphasis added
From Goldman Sachs:
We lowered our Q2 GDP tracking estimate by two tenths to +1.3% and our past-quarter GDP tracking estimate for Q1 by one tenth to +3.0% (qoq ar). [Updated: May 24 estimate]
From the NY Fed Nowcasting Report
The New York Fed Staff Nowcast stands at 1.4% for 2019:Q2. News from this week's data releases decreased the nowcast for 2019:Q2 by 0.4 percentage point. Negative surprises from the Advance Durable Goods Report drove most of the decrease. [May 24 estimate].
And from the Altanta Fed: GDPNow
The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2019 is 1.3 percent on May 24, up from 1.2 percent on May 16. [May 24 estimate]
CR Note: These early estimates suggest real GDP growth will be in the mid-1% range annualized in Q2.

Housing and Recessions

by Calculated Risk on 5/24/2019 10:55:00 AM

Now that new home sales have reached a new cycle high (in March), I'd like to update a couple of graphs in a previous post (most of this from an earlier post).

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.

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.

BKFSThe second graph shows the YoY change in New Home Sales from the Census Bureau.

Note: the New Home Sales data is smoothed using a three month centered average before calculating the YoY change. The Census Bureau data starts in 1963.

Some observations:

1) When the YoY change in New Home Sales falls about 20%, usually a recession will follow. The one exception for this data series was the mid '60s when the Vietnam buildup kept the economy out of recession.   Note that the sharp decline in 2010 was related to the housing tax credit policy in 2009 - and was just a continuation of the housing bust.

2) It is also interesting to look at the '86/'87 and the mid '90s periods. New Home sales fell in both of these periods, although not quite 20%. As I noted in earlier posts, the mid '80s saw a surge in defense spending and MEW that more than offset the decline in New Home sales. In the mid '90s, nonresidential investment remained strong.

Although new home sales were down towards the end of 2018, the decline wasn't that large historically.  As I noted last Fall, I wasn't even on recession watch.   Now new home sales are up year-over-year.  No worries.

Merrill on the "Softening" Auto Sector

by Calculated Risk on 5/24/2019 08:52:00 AM

A few brief excerpt from a Merrill Lynch research note on the auto sector: Autos: lot full

In our view, the peak in auto sales is clear and we will likely see some softening going forward, but we do not expect a sharp drop. The labor market is still solid with a healthy pace of job growth and the emergence of wage inflation. Consumers are feeling increasingly confident about job prospects, which could encourage the purchase of a big-ticket item such as a vehicle. Absent a recession, auto sales will avoid the painful drop.

The slowdown in sales leads to excess inventory ... the excess inventory is largely concentrated in light trucks and SUVs and the cost to carry such inventory is high. Producers have started to respond, with motor vehicle production down 2.5% mom sa in April, marking the second drop in three months. There is likely more to come.

A weakening in the auto cycle will serve as a drag to the economy. … Motor vehicle output added an average of 0.2pp / year to real GDP growth from 2010 to 2018 after slicing a half of a percentage point in each 2008 and 2009. Motor vehicle production is already on course to be a drag this year, slicing 0.14pp from 1Q GDP growth. We expect it to cut nearly 0.2pp to annual growth this year. Relative to last year, that is a reversal of 0.4pp. It doesn’t feel great but it is manageable. A decline in output naturally means there is also a decline in jobs.
emphasis added
CR Notes: this is close to my view. As I wrote earlier this month: A small decline in sales this year isn't a concern - I think sales will move mostly sideways at near record levels.

This means the economic boost from increasing auto sales is over.

Vehicle Sales The graph shows light vehicle sales since the BEA started keeping data in 1967.

Note: dashed line is April estimated sales rate of 16.43 million SAAR.

Thursday, May 23, 2019

"Mortgage Rates Drop Quickly as Market Panic Sets In"

by Calculated Risk on 5/23/2019 06:13:00 PM

We could see a 3 handle for mortgage rates tomorrow.

From Matthew Graham at Mortgage News Daily: Lowest Mortgage Rates in More Than a Month

Mortgage rates dropped quickly today as global financial markets underwent a volatile shift. When money is flowing out of stocks and into bonds (as it was today) rates move lower. There are several underlying reasons for the move and it's impossible to assign a value to each of them with perfect precision.

The net effect for mortgage rates hasn't been fully realized yet. Mortgage lenders set rates at the beginning of the day and they don't tend to change their offerings unless markets make a very big move. Today's very big moves came in several phases and lenders only accounted for a little more than half of the underlying change in bond markets. Nonetheless, the average lender ended the day in line with the lowest rates in more than a year. If bond markets merely hold steady by tomorrow morning, mortgage rates will be even lower. [30YR FIXED - 4.0-4.125%]
CR Note: The decline in mortgage rates - from around 5% late last year, to 4% - is a key factor in the pickup in new home sales.

A few Comments on April New Home Sales

by Calculated Risk on 5/23/2019 01:01:00 PM

New home sales for April were reported at 673,000 on a seasonally adjusted annual rate basis (SAAR). Sales for March were revised up to 723,000, a new high for this cycle.   Sales in January and February were also revised up.

My view has been that we'd see further growth in New Home sales.  Last month I wrote: "My guess is we haven't seen the peak of this cycle yet."   Didn't take long!

Earlier: New Home Sales decreased to 673,000 Annual Rate in April, March Revised up to New Cycle High.

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

This graph shows new home sales for 2018 and 2019 by month (Seasonally Adjusted Annual Rate).

Sales in April were up 7.0% year-over-year compared to April 2018.

Year-to-date (just through April), sales are up 6.7% compared to the same period in 2018.  This comparison was the most difficult in the first half of 2018, so this is a strong start for 2019.

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.

Distressing GapThe "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through April 2019. 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.

Even though distressed sales are down significantly, following the bust, new home builders focused on more expensive homes - so the gap has only closed slowly.

I still expect this gap to close.   However, this assumes that the builders will offer some smaller, less expensive homes.

Distressing GapAnother way to look at this is a ratio of existing to new home sales.

This ratio was fairly stable from 1994 through 2006, and then the flood of distressed sales kept the number of existing home sales elevated and depressed new home sales. (Note: This ratio was fairly stable back to the early '70s, but I only have annual data for the earlier years).

In general the ratio has been trending down since the housing bust, and this ratio will probably continue to trend down a little more.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

Kansas City Fed: "Growth in Tenth District Manufacturing Activity Continued at a Modest Pace"

by Calculated Risk on 5/23/2019 11:00:00 AM

From the Kansas City Fed: Growth in Tenth District Manufacturing Activity Continued at a Modest Pace

The Federal Reserve Bank of Kansas City released the May Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that growth in Tenth District manufacturing activity continued at a modest pace, and expectations for future activity remained generally solid.

Regional factory growth was sluggish again in May,” said Wilkerson. “Several firms noted that new tariffs were disrupting activity.”
...
The month-over-month composite index was 4 in May, similar to a reading of 5 in April but down from 10 in March. The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes. Growth continued to grow modestly at most durable and nondurable production plants, with stronger growth for food, plastics, and metals products. Most month-over-month indexes slowed slightly in May but remained positive, with production, shipments, and new orders indexes all decreasing. In contrast, the employment index rebounded from 2 to 5, and both inventory indexes also increased. Most year-over-year factory indexes showed little change, with the composite index inching higher from 22 to 23. The future composite index also edged up, moving from 11 to 12, and most future factory activity indexes remained stable or moved slightly higher.
emphasis added
A couple of industry comments:
“The increased costs of steel and plastic are crippling us.”

“April was a down month but May will be worse. Tariffs will force us to reduce our workforce and increase costs to the consumer.”

New Home Sales decreased to 673,000 Annual Rate in April, March Revised up to New Cycle High

by Calculated Risk on 5/23/2019 10:19:00 AM

The Census Bureau reports New Home Sales in April were at a seasonally adjusted annual rate (SAAR) of 692 thousand.

The previous three months were revised up.

"Sales of new single‐family houses in April 2019 were at a seasonally adjusted annual rate of 673,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 6.9 percent below the revised March rate of 723,000, but is 7.0 percent above the April 2018 estimate of 629,000."
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 April to 5.9 months from 5.6 months in March.

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

This is near the top of the normal range (less than 6 months supply is normal).
"The seasonally‐adjusted estimate of new houses for sale at the end of April was 332,000. This represents a supply of 5.9 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 April 2019 (red column), 66 thousand new homes were sold (NSA). Last year, 61 thousand homes were sold in April.

The all time high for April was 116 thousand in 2005, and the all time low for April was 30 thousand in 2011.

This was close to expectations of 678 thousand sales SAAR, and sales in the three previous months were revised up significantly.  And sales in March were revised up to a new cycle high. I'll have more later today.

Weekly Initial Unemployment Claims Decrease to 211,000

by Calculated Risk on 5/23/2019 08:32:00 AM

The DOL reported:

In the week ending May 18, the advance figure for seasonally adjusted initial claims was 211,000, a decrease of 1,000 from the previous week's unrevised level of 212,000. The 4-week moving average was 220,250, a decrease of 4,750 from the previous week's unrevised average of 225,000.
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 decreased to 220,250.

This was below the consensus forecast.

Wednesday, May 22, 2019

Thursday: New Home Sales, Unemployment Claims

by Calculated Risk on 5/22/2019 07:04:00 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 212 thousand last week.

• At 10:00 AM, New Home Sales for April from the Census Bureau. The consensus is for 678 thousand SAAR, down from 692 thousand in March.

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

FOMC Minutes: "A patient approach ... would likely remain appropriate for some time"

by Calculated Risk on 5/22/2019 02:08:00 PM

From the Fed: Minutes of the Federal Open Market Committee, April 30, 2019, and continued on Wednesday, May 1, 2019. A few excerpts:

Participants discussed the potential policy implications of continued low inflation readings. Many participants viewed the recent dip in PCE inflation as likely to be transitory, and participants generally anticipated that a patient approach to policy adjustments was likely to be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective. Several participants also judged that patience in adjusting policy was consistent with the Committee's balanced approach to achieving its objectives in current circumstances in which resource utilization appeared to be high while inflation continued to run below the Committee's symmetric 2 percent objective. However, a few participants noted that if the economy evolved as they expected, the Committee would likely need to firm the stance of monetary policy to sustain the economic expansion and keep inflation at levels consistent with the Committee's objective, or that the Committee would need to be attentive to the possibility that inflation pressures could build quickly in an environment of tight resource utilization. In contrast, a few other participants observed that subdued inflation coupled with real wage gains roughly in line with productivity growth might indicate that resource utilization was not as high as the recent low readings of the unemployment rate by themselves would suggest. Several participants commented that if inflation did not show signs of moving up over coming quarters, there was a risk that inflation expectations could become anchored at levels below those consistent with the Committee's symmetric 2 percent objective—a development that could make it more difficult to achieve the 2 percent inflation objective on a sustainable basis over the longer run. Participants emphasized that their monetary policy decisions would continue to depend on their assessments of the economic outlook and risks to the outlook, as informed by a wide range of data.

In their consideration of the economic outlook, members noted that financial conditions had improved since the turn of the year, and many uncertainties affecting the U.S. and global economic outlooks had receded, though some risks remained. Despite solid economic growth and a strong labor market, inflation pressures remained muted. Members continued to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes for the U.S. economy. In light of global economic and financial developments and muted inflation pressures, members concurred that the Committee could be patient as it determined what future adjustments to the target range for the federal funds rate may be appropriate to support those outcomes.

After assessing current conditions and the outlook for economic activity, the labor market, and inflation, members decided to maintain the target range for the federal funds rate at 2-1/4 to 2-1/2 percent. Members agreed that in determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee would assess realized and expected economic conditions relative to the Committee's maximum-employment and symmetric 2 percent inflation objectives. They reiterated that this assessment would take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. More generally, members noted that decisions regarding near-term adjustments of the stance of monetary policy would appropriately remain dependent on the evolution of the outlook as informed by incoming data.

Members observed that a patient approach to determining future adjustments to the target range for the federal funds rate would likely remain appropriate for some time, especially in an environment of moderate economic growth and muted inflation pressures, even if global economic and financial conditions continued to improve.
emphasis added

Philly Fed: State Coincident Indexes increased in 44 states in April

by Calculated Risk on 5/22/2019 12:11:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for April 2019. Over the past three months, the indexes increased in 46 states and decreased in four, for a three-month diffusion index of 84. In the past month, the indexes increased in 44 states, decreased in four states, and remained stable in two, for a one-month diffusion index of 80.
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 April, 44 states had increasing activity (including minor increases).

AIA: "Slight rebound for architecture billings in April"

by Calculated Risk on 5/22/2019 10:16:00 AM

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

From the AIA: Slight rebound for architecture billings in April

Following a sizable decrease in demand for design services in March, the April Architecture Billings Index (ABI) climbed back into positive territory according to a new report today from The American Institute of Architects (AIA).

AIA’s ABI score for April showed a small increase in design services at 50.5 in April, which is up from 47.8 in March. Any score above 50 indicates an increase in billings. Additionally, business conditions remained strong at firms located in the South. Despite this and the positive overall billings score, most regional and sector indictors continue to display decreasing demand for design services.

“In contrast to 2018, conditions throughout the construction sector recently have become more unsettled,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “Though we may not be at a critical inflection point, the next several months of billing data will be indicative of the health of the industry going into 2020.”
...
• Regional averages: South (51.6); Midwest (49.3); West (49.0); Northeast (45.1)

• Sector index breakdown: mixed practice (53.2); institutional (49.2); multi-family residential (47.4); commercial/industrial (46.6)
emphasis added
AIA Architecture Billing Index Click on graph for larger image.

This graph shows the Architecture Billings Index since 1996. The index was at 50.5 in April, up from 47.8 in March. Anything above 50 indicates expansion in demand for architects' services.

Note: This includes commercial and industrial facilities like hotels and office buildings, multi-family residential, as well as schools, hospitals and other institutions.

According to the AIA, there is an "approximate nine to twelve month lag time between architecture billings and construction spending" on non-residential construction.  This index has been positive for 11 of the previous 12 months, suggesting a further increase in CRE investment in 2019.

MBA: Mortgage Applications Increased in Latest Weekly Survey

by Calculated Risk on 5/22/2019 07:00:00 AM

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

Mortgage applications increased 2.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending May 17, 2019.

... The Refinance Index increased 8 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index decreased 3 percent compared with the previous week and was 7 percent higher than the same week one year ago.
...
Mortgage rates fell for the fourth straight week, with the 30-year fixed rate mortgage hitting its lowest level since January 2018, leading to a rebound in refinances. The refinance index increased 8 percent to its highest level in over a month, and once again there was an increase in average refinance loan sizes, as borrowers with larger balances responded accordingly to lower rates,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Purchase activity declined again, but remained around 7 percent higher than a year ago. We’re keeping a close eye on whether there may be some adverse effects of the ongoing global trade disputes on overall demand. Some potential homebuyers may be delaying their home search until there’s more certainty.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 4.33 percent from 4.40 percent, with points increasing to 0.43 from 0.40 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added
Mortgage Refinance IndexClick on graph for larger image.


The first graph shows the refinance index since 1990.

Once mortgage rates fell more than 50 bps from the highs of last year, a number of recent buyers were able to refinance.  But it would take another significant decrease in rates to see a further increase in refinance activity.

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

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

Tuesday, May 21, 2019

Wednesday: FOMC Minutes

by Calculated Risk on 5/21/2019 08:14:00 PM

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

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

• At 2:00 PM, FOMC Minutes, Meeting of April 30-May 1, 2019

Chemical Activity Barometer Increased Slightly in May

by Calculated Risk on 5/21/2019 04:07:00 PM

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

From the American Chemistry Council: Chemical Activity Barometer Shows Third Monthly Gain in May

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), rose 0.4 percent in May on a three-month moving average (3MMA) basis, the third monthly gain after several weak months. On a year-over-year (Y/Y) basis, the barometer is up 0.5 percent (3MMA).
...
"Year-earlier comparisons have turned positive in recent months, and while trade tensions, slowing economic growth overseas, and soft economic reports in the U.S. have created uncertainty that has weighed on business investment, the CAB signals gains in U.S. commercial and industrial activity through mid-2019, albeit at a moderate pace,” said Kevin Swift, chief economist at ACC. “There is some possibility of improving activity in the closing months of the 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 suggests that the YoY increase in industrial production will probably slow further.

Comments on April Existing Home Sales

by Calculated Risk on 5/21/2019 01:28:00 PM

Earlier: NAR: Existing-Home Sales Decreased to 5.19 million in April

A few key points:

1) The key for housing - and the overall economy - is new home sales, single family housing starts and overall residential investment.

Overall, this is still a somewhat reasonable level for existing home sales.  No worries.

2) Inventory is still low, and was only up 1.7% year-over-year (YoY) in April. This was the ninth consecutive month with a year-over-year increase in inventory, although the YoY increase was smaller in April than in the six previous months.

Existing Home Sales NSAClick on graph for larger image.

3) Year-to-date sales are down about 4.9% compared to the same period in 2018.   On an annual basis, that would put sales around 5.1 million in 2019.  Sales slumped at the end of 2018 and in January 2019 due to higher mortgage rates, the stock market selloff, and fears of an economic slowdown (unfounded).

The comparisons will be easier towards the end of the year.

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

Sales NSA in April (455,000, red column) were below sales in April 2018 (460,000, NSA), but sales were higher than in April 2017..

NAR: Existing-Home Sales Decreased to 5.19 million in April

by Calculated Risk on 5/21/2019 10:11:00 AM

From the NAR: Existing-Home Sales Inch Back 0.4% in April

Existing-home sales saw a minor decline in April, continuing March’s drop in sales, according to the National Association of Realtors®. Two of the four major U.S. regions saw a slight dip in sales, while the West saw growth and the Midwest essentially bore no changes last month.

Total existing-home sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, fell 0.4% from March to a seasonally adjusted annual rate of 5.19 million in April. Total sales are down 4.4% from a year ago (5.43 million in April 2018).
...
Total housing inventory at the end of April increased to 1.83 million, up from 1.67 million existing homes available for sale in March and a 1.7% increase from 1.80 million a year ago. Unsold inventory is at a 4.2-month supply at the current sales pace, up from 3.8 months in March and up from 4.0 months in April 2018.
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 April (5.19 million SAAR) were down 0.4% from last month, and were 4.4% below the April 2018 sales rate.

The second graph shows nationwide inventory for existing homes.

Existing Home Inventory According to the NAR, inventory increased to 1.83 million in April from 1.67 million in March.   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 1.7% year-over-year in April compared to April 2018.

Months of supply was at 4.2 months in April.

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

Black Knight: National Mortgage Delinquency Rate Decreased to Record Low in April

by Calculated Risk on 5/21/2019 08:51:00 AM

From Black Knight: Black Knight’s First Look: Strong April Mortgage Performance Pushes National Delinquency Rate to New Record Low; Prepayment Activity Continues to Rise

• Following a slow start to the year, the national delinquency rate fell by more than 5% month-over-month; at 3.47%, it is now at its lowest level on record dating back to 2000

• Serious delinquencies – loans 90 or more days past due, but not yet in foreclosure – fell to 474,000, marking a 124,000 year-over-year decline and a 12-year low

• While monthly foreclosure starts edged up slightly from March’s 18-year low, the number of loans in active foreclosure continued to shrink, hitting a more than 13-year low in April

• Prepayment activity continues to press upward, driven by a combination of low interest rates and seasonal increases in home sale activity

• The prepayment rate on first-lien mortgages rose 17% from March, bringing the three-month aggregate increase to 67%
According to Black Knight's First Look report for April, the percent of loans delinquent decreased 5.0% in April compared to March, and decreased 5.4% year-over-year.

The percent of loans in the foreclosure process decreased 2.2% in April and were down 18.8% 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 3.47% in April, down from 3.65% in March.

The percent of loans in the foreclosure process decreased slightly in April to 0.50% from 0.51% in March.

The number of delinquent properties, but not in foreclosure, is down 73,000 properties year-over-year, and the number of properties in the foreclosure process is down 55,000 properties year-over-year.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
  Apr
2019
Mar
2019
Apr
2018
Apr
2017
Delinquent3.47%3.65%3.67%4.08%
In Foreclosure0.50%0.51%0.61%0.85%
Number of properties:
Number of properties that are delinquent, but not in foreclosure:1,812,0001,903,0001,885,0002,072,000
Number of properties in foreclosure pre-sale inventory:259,000264,000314,000433,000
Total Properties2,072,0002,167,0002,199,0002,505,000

Monday, May 20, 2019

Tuesday: Existing Home Sales

by Calculated Risk on 5/20/2019 06:40:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Mostly Hold Near Lows, But Things Could Change Tomorrow

Much of the credit for the recent drop in rates goes to the well-publicized trade tensions between the US and China. As the cycle of inflammatory headlines dies down, so too does the motivation for interest rates to remain as low as they have been. Granted, this is far from the only source of inspiration for interest rate movement, but it has probably been the biggest motivation over the past 2 weeks. [30YR FIXED - 4.0% - 4.125%]
emphasis added
Tuesday:
• At 10:00 AM ET, Existing Home Sales for April from the National Association of Realtors (NAR). The consensus is for 5.36 million SAAR, up from 5.21 million. Housing economist Tom Lawler expects the NAR to report sales of 5.31 million SAAR for April.

The Changing Mix of Light Vehicle Sales

by Calculated Risk on 5/20/2019 03:03:00 PM

SUVs to the left of me, SUVs to the right.  It made me look at the changing mix of vehicle sales over time (between passenger cars and light trucks / SUVs).

The first graph below shows the mix of sales since 1976 (Blue is cars, Red is light trucks and SUVs).

Vehicle Sales
Click on graph for larger image.

The mix has changed significantly. Back in 1976, most light vehicles were passenger cars - however car sales have trended down over time.

Note that the big dips in sales are related to economic recessions (early '80s, early '90s, and the Great Recession of 2007 through mid-2009).

Vehicle Sales The second graph shows the percent of light vehicle sales between passenger cars and trucks / SUVs.

Over time the mix has changed toward more and more light trucks and SUVs.

Only when oil prices are high, does the trend slow or reverse.

Recently oil prices have been somewhat steady, and the percent of light trucks and SUVs is up to 71%.