by Calculated Risk on 5/19/2011 10:00:00 AM

The NAR reports: April Existing-Home Sales Ease

Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, eased 0.8 percent to a seasonally adjusted annual rate of 5.05 million in April from a downwardly revised 5.09 million in March, and are 12.9 percent below a 5.80 million pace in April 2010; sales surged in April and May of 2010 in response to the home buyer tax credit.
...
Total housing inventory at the end of April increased 9.9 percent to 3.87 million existing homes available for sale, which represents a 9.2-month supply4 at the current sales pace, up from an 8.3-month supply in March.

Click on graph for larger image in graph gallery.

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

Sales in April 2011 (5.05 million SAAR) were 0.8% lower than last month, and were 12.9% lower than in April 2010.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 3.87 million in April from 3.52 million in March.

Inventory is not seasonally adjusted and there is a clear seasonal pattern with inventory peaking in the summer and declining in the fall and winter. Inventory will probably increase over the next several months.

The last graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so 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 - so the increase in months-of-supply during the Spring is expected.

Although inventory increased from March to April (as usual), inventory decreased 3.9% year-over-year in April from April 2010. This is the third consecutive month with a YoY decrease in inventory.

Inventory should increase over the next few months and peak in the summer (the normal seasonal pattern), and the YoY change is something to watch closely this year.

Months of supply increased to 9.2 months in April, up from 8.3 months in March. The months of supply will probably increase over the next few months as inventory increases. This is much higher than normal.

These sales numbers were below the consensus of 5.2 million SAAR, but the key number is the year-over-year change in inventory, and that suggests less downward pressure on house prices even though inventory is well above normal (I'll have more later - here is the NSA chart)

UPDATE: Some people misread what I wrote. There is STILL downward pressure on house prices from the high level of inventory, but the year-over-year decline suggests "less" downward pressure. "Less" does not mean "none". Of course there is also downward pressure from all the distressed sales.

by Calculated Risk on 5/19/2011 08:30:00 AM

The DOL reports on weekly unemployment insurance claims:

In the week ending May 14, the advance figure for seasonally adjusted initial claims was 409,000, a decrease of 29,000 from the previous week's revised figure of 438,000. The 4-week moving average was 439,000, an increase of 1,250 from the previous week's revised average of 437,750.

Click on graph for larger image in graph gallery.

This graph shows the 4-week moving average of weekly claims for the last 40 years. The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased this week to 439,000.

This is the highest level for the 4-week average since last November.

Note: It appears there were some temporary factors over the last few weeks that led to higher weekly unemployment claims. I expect the 4-week average to decline over the next few weeks, but it is concerning that the average is above 400,000 again.
_________________________________________________________
Schedule Update: At 10 AM ET the following will be released:

1) April Existing home sales
2) MBA Q1 Delinquency report
3) Philly Fed manufacturing survey
4) Conference Board leading indicators

I plan on posting on existing home sales. Then I'll be on the MBA conference call - and post on that data - and then I'll get back to the Philly Fed.

by Calculated Risk on 5/18/2011 09:46:00 PM

From Catherine Rampell at the NY Times: Many With New College Degree Find the Job Market Humbling

Employment rates for new college graduates have fallen sharply in the last two years, as have starting salaries for those who can find work. What’s more, only half of the jobs landed by these new graduates even require a college degree ...

The median starting salary for students graduating from four-year colleges in 2009 and 2010 was $27,000, down from $30,000 for those who entered the work force in 2006 to 2008, according to a study released on Wednesday ...

Among the members of the class of 2010, just 56 percent had held at least one job by this spring, when the survey was conducted. That compares with 90 percent of graduates from the classes of 2006 and 2007.

And many of there recent graduates are saddled with excessive student debt - a difficult situation and a poor time to start a career.

by Calculated Risk on 5/18/2011 05:48:00 PM

Tomorrow morning will be busy, and I just wanted to touch on these three releases:

• Weekly Initial Unemployment Claims. The number of claims jumped up in recent weeks and this raises a key question: Is this a sign of renewed weakness in the labor market, or was the increase temporary? Goldman Sachs put out a note earlier this week arguing the increase in claims was mostly temporary due to auto-sector layoffs (related to supply chain and the earthquake in Japan), some unusual seasonal factors mostly (timing of Easter and shifting school holidays) and a few other miscellaneous factors. There were probably also some storm / flooding related claims, so we might not see a huge decline in the report tomorrow. The consensus is for a decrease to 420,000 from 434,000 last week - and this will be important to watch over the next few weeks.

• The Mortgage Bankers Association (MBA) will release the Q1 National Delinquency Survey (NDS) survey. My guess is this will show a sharp decline in overall delinquencies, but probably a record percentage of loans in the foreclosure process. I expect this will be viewed as good news (because of the sharp decline in overall delinquencies). I'll be on the conference call at 10:30 AM and pass along the comments.

• Existing Home Sales for April. Tom Lawler is estimating that the NAR will report that "existing home sales ran at a seasonally adjusted annual rate of 5.15 million in April, up 1% from March’s pace, but down 11.2% from last April’s tax-credit-goosed pace".

Probably more important than sales is the change in inventory. This is hard to predict, but Lawler expects a modest 1.5-2.0% increase from March to April. However Tom has warned that the NAR seems to always show a huge inventory increase in April, and even though the number is suspect, inventory is probably the key number in tomorrow's report.

Last April, the NAR reported inventory at 4.029 million units, and NAR reported 3.549 million in March 2011. It would take a pretty large month-to-month increase to see a positive year-over-year change in inventory.

This graph based on the March shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Inventory is not seasonally adjusted, so it really helps to look at the YoY change.

Click on graph for larger image in graph gallery.

Although inventory increased from February to March (as usual), inventory decreased 2.1% year-over-year in March (from March 2010). This is the second consecutive month with a small YoY decrease in inventory.

Although inventory is already very high, if the trend of declining year-over-year inventory continues there would be less pressure on house prices. Note: There are also questions about "active" inventory since it seems more homes are "pending" or otherwise not active in the listings, but that will not be addressed in the release tomorrow.

by Calculated Risk on 5/18/2011 02:00:00 PM

The Bernanke press conference after the FOMC meeting covered some of discussion in the statement.

From the April 27, 2011 FOMC meeting. There is a lengthy discussion on the eventual exit strategy, although it clearly will not happen soon.

Meeting participants agreed on several principles that would guide the Committee's strategy for normalizing monetary policy. First, with regard to the normalization of the stance of monetary policy, the pace and sequencing of the policy steps would be driven by the Committee's monetary policy objectives for maximum employment and price stability. Participants noted that the Committee's decision to discuss the appropriate strategy for normalizing the stance of policy at the current meeting did not mean that the move toward such normalization would necessarily begin soon. Second, to normalize the conduct of monetary policy, it was agreed that the size of the SOMA's securities portfolio would be reduced over the intermediate term to a level consistent with the implementation of monetary policy through the management of the federal funds rate rather than through variation in the size or composition of the Federal Reserve's balance sheet. Third, over the intermediate term, the exit strategy would involve returning the SOMA to holding essentially only Treasury securities in order to minimize the extent to which the Federal Reserve portfolio might affect the allocation of credit across sectors of the economy. Such a shift was seen as requiring sales of agency securities at some point. And fourth, asset sales would be implemented within a framework that had been communicated to the public in advance, and at a pace that potentially could be adjusted in response to changes in economic or financial conditions.

In addition, nearly all participants indicated that the first step toward normalization should be ceasing to reinvest payments of principal on agency securities and, simultaneously or soon after, ceasing to reinvest principal payments on Treasury securities. Most participants viewed halting reinvestments as a way to begin to gradually reduce the size of the balance sheet. It was noted, however, that ending reinvestments would constitute a modest step toward policy tightening, implying that that decision should be made in the context of the economic outlook and the Committee's policy objectives. In addition, changes in the statement language regarding forward policy guidance would need to accompany the normalization process.

The sequence will probably be: 1) End of QE2 at the end of June, 2) stop reinvestment some time later this year, 3) remove the "exceptionally low levels for the federal funds rate for an extended period" late this year or in 2012, 4) and then start raising rates / selling assets in 2012 or even 2013. Anyone expecting the Fed to raise rates this year is probably overlooking some of these steps.

And here were the forecasts as of April 27th (GDP was revised down, inflation up, unemployment rate down - Bernanke released this earlier):

April 2011 Economic projections of Federal Reserve Governors and Reserve Bank presidents
	2011	2012	2013
Change in Real GDP	3.1 to 3.3	3.5 to 4.2	3.5 to 4.3
Previous Projection (Jan 2011)	3.4 to 3.9	3.5 to 4.4	3.7 to 4.6
Unemployment Rate	8.4 to 8.7	7.6 to 7.9	6.8 to 7.2
Previous Projection (Jan 2011)	8.8 to 9.0	7.6 to 8.1	6.8 to 7.2
PCE Inflaton	2.1 to 2.8	1.2 to 2.0	1.4 to 2.0
Previous Projection (Jan 2011)	1.3 to 1.7	1.0 to 1.9	1.2 to 2.0
Core PCE Inflation	1.3 to 1.6	1.3 to 1.8	1.4 to 2.0
Previous Projection (Jan 2011)	1.0 to 1.3	1.0 to 1.5	1.2 to 2.0

FOMC definitions:
¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.
² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

by Calculated Risk on 5/18/2011 10:50:00 AM

Reader "Soylent Green is People" asks if Retirement Equity Withdrawal is replacing Mortgage Equity Withdrawal (MEW) for those in need?

Borrowing from retirement accounts has definitely increased. From CNBC two weeks ago: More Americans Raiding Retirement Funds Early

... 19 percent of Americans — including 17 percent of full-time workers — have been compelled to take money from their retirement savings in the last year to cover urgent financial needs, the Financial Security Index found.

And from a new study by Aon Hewitt: Leakage of Participants’ DC Assets: How Loans, Withdrawals, and Cashouts Are Eroding Retirement Income Note: "DC" is Defined Contribution - like a 401(k) plan.

As of year-end 2010, nearly 28% of active participants had a loan outstanding, which is a record high. Nearly 14% of participants initiated new loans during 2010, slightly higher than previous years. The average balance of the outstanding amount was $7,860, which represented 21% of these participants’ total plan assets.

Hmmm ... $7,860 is 21% of total assets? That means the average total balance is less than $40,000 for participants who borrow from a DC plan.

Also - check out page 4 of the Aon Hewitt study. The 2nd graph shows that 32.8% of participants in the 40 to 49 age cohort have DC loans, and 29.0% in the 50 to 59 age cohort have loans. These people have next to nothing in their retirement plans and most will probably have to rely on Social Security if they ever retire.

Note: Politicians are trying to limit this borrowing, from Bloomberg: Senate Bill Would Limit Using 401(k)s as Rainy-Day Funds

My feeling is REW isn't really the new MEW. The size is much smaller, and this borrowing is much more need related as opposed to buying bigger toys, or being used for home improvement. But as "Soylent Green is People" suggested in his email to me, this reliance on REW is "an indicator of financial peril".

by Calculated Risk on 5/18/2011 07:52:00 AM

The MBA reports: Mortgage Refinance Applications Increase in Latest MBA Weekly Survey

Refinance Index increased 13.2 percent from the previous week and is at its highest level since the week ending December 10, 2010. The seasonally adjusted Purchase Index decreased 3.2 percent from one week earlier.
...
“The 30-year fixed mortgage rate is now 53 basis points below its 2011 peak, and has decreased for five straight weeks,” said Michael Fratantoni, MBA’s Vice President of Research. “Over this five week span, the refinance index has increased by about 33 percent. Refinance application volumes remain about 50 percent below the most recent peak last October. ”
...
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.60 percent from 4.67 percent, with points decreasing to 0.94 from 1.10 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the lowest 30-year rate recorded in the survey since the end of November 2010.

Click on graph for larger image in graph gallery.

This graph shows the MBA Purchase Index and four week moving average since 1990.

Refinance activity increased as mortgage rates fell to the lowest level since November 2010.

The four week average of purchase activity is at about 1997 levels, although this doesn't include the very high percentage of cash buyers. This suggests weak existing home sales through June (not counting cash buyers).

by Calculated Risk on 5/18/2011 12:05:00 AM

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

From Reuters: US architecture billings index falls in April-AIA

The architecture billings index fell almost 3 points last month to 47.6, a level that indicates declining demand for architecture services, according to the American Institute of Architects (AIA).
...
"The majority of firms are reporting at least one stalled project in-house because of the continued difficulty in obtaining financing," said AIA Chief Economist Kermit Baker. "That issue continues to be the main roadblock to recovery, and is unlikely to be resolved in the immediate future."

Click on graph for larger image in graph gallery.

This graph shows the Architecture Billings Index since 1996. The index showed billings decreased in April (index at 47.6, anything below 50 indicates a decrease in billings).

Note: Nonresidential construction includes commercial and industrial facilities like hotels and office buildings, 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.

by Calculated Risk on 5/17/2011 10:07:00 PM

A couple of stories:

• From LPS "first look" report: April Month-End Data Shows an Increase in Delinquency Rate and Drop in Foreclosure Inventories. After the sharp drop in delinquencies in March, the delinquency rate edged up in April.

The delinquency rate increased to 7.97% from 7.78% in March. There were an additional 4.14% of mortgage in the foreclosure process, down from 4.21% in March.

A total of 6.39 million loans were delinquent, up slightly from 6.33 million. The full report will be released on May 26th. Note: The Q1 delinquency report from the MBA will be released this Thursday and will probably show a sharp decline in delinquencies.

• From FNC: March Home Prices Show Improving Trends - Rising 0.1% from February. This is one of several house price indexes I'm following in addition to Case-Shiller and CoreLogic. This is non-distressed sales.

FNC announced Wednesday that U.S. home prices in March continue to show signs of stabilization following rather mild declines in February, making March the second consecutive month with better-than-expected price momentum.

Based on the latest data on non-distressed home sales (existing and new homes), FNC’s Residential Price Index™ 1 (RPI) indicated that single-family home prices in March trended slightly upward since February at a seasonally unadjusted rate of 0.1%, consistent with rising home sales during the month. Despite continued downward price pressure from a relatively high volume of foreclosure sales, March marks the first month that home prices have shown a modest one-month gain since the April 2010 expiration of the homebuyer tax credits.

Note: This is a hedonic price index using both sales and real-time appraisals. In general it has tracked pretty well with Case-Shiller and CoreLogic.

FNC has data online for 30 MSAs here.

Earlier:
• Housing Starts decline in April
• Industrial Production unchanged in April, Capacity Utilization declines slightly
• Multi-family Starts and Completions, and Quarterly Starts by Intent

by Calculated Risk on 5/17/2011 07:37:00 PM

From Motoko Rich and Stephanie Clifford at the NY Times: In Consumer Behavior, Signs of Gas Price Pinch

“Our customers are consolidating trips due to higher gas prices,” said Bill Simon, who oversees the [WalMart] United States business.
...
“Rising gas and energy prices are cited by homeowners as the top factor affecting future spending plans, followed by the state of the overall economy and inflation in general,” said Lowe’s chief executive, Robert A. Niblock, explaining earnings that missed analyst expectations in a call with investors.

MasterCard Advisors SpendingPulse, which researches consumer spending, reported on Tuesday that the gallons of gas pumped nationwide in the last month fell by 1 percent from the same period a year ago.

And a similar article from Miguel Bustillo at the WSJ: Fewer Trips to Stores Hurt Wal-Mart, Lowe's

The price of gas has remained close to $4 a gallon in May. The national average was $3.94 Tuesday morning, according to the automotive group AAA, up substantially from $2.87 a year ago.

These reports from Home Depot, Lowe's and WalMart were all for Q1, and oil prices averaged close to $95 per barrel (WTI) in Q1, and even with the recent decline - that is below the current price of $98 per barrel. So April and May (so far) were probably worse for these retailers since gasoline prices were even higher than in Q1.