by Calculated Risk on 10/24/2014 10:00:00 AM

The Census Bureau reports New Home Sales in September were at a seasonally adjusted annual rate (SAAR) of 467 thousand.

August sales were revised down from 504 thousand to 466 thousand, and July sales were revised down from 427 thousand to 404 thousand.

"Sales of new single-family houses in September 2014 were at a seasonally adjusted annual rate of 467,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.2 percent above the revised August rate of 466,000 and is 17.0 percent above the September 2013 estimate of 399,000."

Click 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 previous two years, new home sales are still close to the bottom for previous recessions.

The second graph shows New Home Months of Supply.

The months of supply was unchanged in September at 5.3 months.

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

This is now in the normal range (less than 6 months supply is normal).

"The seasonally adjusted estimate of new houses for sale at the end of September was 207,000. This represents a supply of 5.3 months at the current sales rate."

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

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

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

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In September 2014 (red column), 38 thousand new homes were sold (NSA). Last year 31 thousand homes were sold in September.  This was the best September since 2007.

The high for September was 99 thousand in 2005, and the low for September was 24 thousand in 2011.

This was close to expectations of 460,000 sales in September, although there were downward revisions to sales in June, July and August.

I'll have more later today.

by Calculated Risk on 10/24/2014 08:01:00 AM

According to Black Knight's First Look report for September, the percent of loans delinquent decreased in September compared to August, and declined by 12% year-over-year.

Also the percent of loans in the foreclosure process declined further in September and were down 33% over the last year.  Foreclosure inventory was at the lowest level since February 2008.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 5.67% in September, down from 5.90% in August. The normal rate for delinquencies is around 4.5% to 5%.

The percent of loans in the foreclosure process declined to 1.76% in September from 1.80% in August.  

The number of delinquent properties, but not in foreclosure, is down 388,000 properties year-over-year, and the number of properties in the foreclosure process is down 435,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for September in early November.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	Sept 2014	Aug 2014	Sept 2013	Sept 2012
Delinquent	5.67%	5.90%	6.46%	7.40%
In Foreclosure	1.76%	1.80%	2.63%	3.87%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,760,000	1,852,000	1,935,000	2,170,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,118,000	1,143,000	1,331,000	1,530,000
Number of properties in foreclosure pre-sale inventory:	893,000	913,000	1,328,000	1,940,000
Total Properties	3,771,000	3,908,000	4,593,000	5,640,000

by Calculated Risk on 10/23/2014 09:01:00 PM

The Inland Empire comes full circle ... from the Chris Kirkham at the LA Times: Strong growth is forecast for Inland Empire

[T]he Inland Empire is now the fastest-growing region in Southern California — a trend predicted to continue over the next five years, according to an economic forecast released Thursday.

The availability of land for development, combined with proximity to ports and major transportation corridors, has given Riverside and San Bernardino counties a growth advantage over more built-out coastal areas over the last two years. Unlike the housing bubble of the mid-2000s — when much of the Inland Empire's job growth was tied to construction and real estate — the economic recovery has been spread across a wider range of industries, such as professional services and goods distribution.
emphasis added

I was very bearish on the Inland Empire during the housing bubble. Here is what I wrote in 2006: Housing: Inverted Reasoning?

As the housing bubble unwinds, housing related employment will fall; and fall dramatically in areas like the Inland Empire. The more an area is dependent on housing, the larger the negative impact on the local economy will be.

So I think some pundits have it backwards: Instead of a strong local economy keeping housing afloat, I think the bursting housing bubble will significantly impact housing dependent local economies.

This time construction is only a small part of the recovery in the Inland Empire - and that is good news!

Friday:
• Early, the Black Knight Financial Services' "First Look" at September Mortgage Data.

• At 10:00 AM ET, New Home Sales for September from the Census Bureau. The consensus is for a decrease in sales to 460 thousand Seasonally Adjusted Annual Rate (SAAR) in September from 504 thousand in August.

by Calculated Risk on 10/23/2014 06:00:00 PM

From the FDIC: FDIC Releases Economic Scenarios for 2015 Stress Testing

The Federal Deposit Insurance Corporation (FDIC) today released the economic scenarios that will be used by certain financial institutions with total consolidated assets of more than $10 billion for stress tests required under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The baseline, adverse, and severely adverse scenarios include key variables that reflect economic activity, including unemployment, exchange rates, prices, income, interest rates, and other salient aspects of the economy and financial markets.

The baseline scenario represents expectations of private sector economic forecasters. The adverse and severely adverse scenarios are not forecasts, rather, they are hypothetical scenarios designed to assess the strength and resilience of financial institutions and their ability to continue to meet the credit needs of households and businesses under stressed economic conditions.

Here is an excel spreadsheet with the scenarios.

Note: I'm not even on "recession watch", and I think the baseline is the most likely scenario for the next couple of years.  However I think these regular stress tests are very helpful for regulators.

The first table is a summary of the baseline scenario (basically in line with most economic forecasts for GDP and unemployment).

Stress Test Baseline Scenario
	GDP1	Unemployment2	DOW3	House Prices3
2014	2.2%	5.9%	6.5%	4.1%
2015	2.9%	5.4%	5.1%	2.5%
2016	2.9%	5.3%	5.3%	3.0%
2017	2.7%	5.3%	5.3%	3.0%

¹ GDP is the average quarterly real change in real GDP.
² Unemployment is for Q4 of each year.
³ The change in the DOW and House Prices is from Q4 of the preceding year to Q4.

The second table is the adverse scenario. This is moderate recession, but a slow recovery. Under the adverse scenario, unemployment peaks at 8% in 2017. The DOW declines about 28% from peak to trough, and house prices fall 13%.

Stress Test Adverse Scenario
	GDP1	Unemployment2	DOW3	House Prices3
2014	1.3%	6.4%	0.0%	2.6%
2015	-0.3%	7.6%	-16.3%	-7.7%
2016	1.4%	8.0%	-7.8%	-5.6%
2017	2.0%	8.0%	0.1%	0.9%

The third table is the severely adverse scenario. This is a severe recession, but a fairly quick recovery. Under the severely adverse scenario, unemployment peaks at 10.1% in 2016. The DOW declines about 58% and house prices fall 25%.

Stress Test Severely Adverse Scenario
	GDP1	Unemployment2	DOW3	House Prices3
2014	0.4%	6.9%	-11.7%	1.9%
2015	-3.7%	9.9%	-49.8%	-14.9%
2016	2.1%	9.9%	33.9%	-11.0%
2017	3.9%	9.1%	43.1%	2.0%

by Calculated Risk on 10/23/2014 01:54:00 PM

A few comments on QE:

• The FOMC is expected to announce the end of QE3 on Wednesday October 29th, following the FOMC meeting next week.

• Most research shows that the primary impact of QE on interest rates is from the size of the Fed balance sheet ("stock") as opposed to the impact on supply and demand ("flow"). This means that interest rates will not spike when QE ends (something I've noted at the conclusion of previous QE purchases).

• The positive impact of QE on the economy was probably modest and was the result of lower interest rates. QE probably lowered interest rates 50 bps (maybe more or less).  However monetary policy has been the only game in town since fiscal policy has had a negative impact on the economy over the last 4 years (my view is the pivot to austerity was a mistake, and the actions of Congress for the last 3+ years have been negative for the economy).

• The possible negative impacts of QE (such as inflation, weak dollar) never materialized.  Inflation remains below the Fed's target, and the U.S. dollar has strengthened recently.   As I noted yesterday, without the recent increases in shelter (rent and OER), inflation would be close to 1% year-over-year.  Without QE, inflation might be dangerously low!

• At the end of the previous rounds of QE, the economy was still struggling from the effects of the housing bust and financial crisis. Households were still deleveraging in the aggregate. Now the economy is in much better shape, and the effects of the crisis are diminishing. Therefore I do not expect another round of QE during this recovery (although I think the first rate hike might be later than most people expect).

• On inflation: Some people are warning that inflation will pick up as the economy gains traction (because of the size of the Fed's balance sheet). That is possible, but I don't expect a rapid increase in inflation. Many of the factors that led to sharply rising inflation in the '70s are not currently present (like wages and contracts tied to CPI and different demographics).

• My view is QE was not a panacea, but overall QE was a success.  I was a frequent critic of the Fed prior to the financial crisis - I think the Fed was almost anti-regulation during the housing bubble, and initially the Fed was behind the curve when the crisis was looming - however once Bernanke became aware of the severity of the crisis, the Fed was aggressive and effective. Perhaps they were a little slow in implementing QE3 - and with low inflation an argument could be made now to extend QE - but overall I think QE was a success.