by Calculated Risk on 1/29/2013 09:00:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for November (a 3 month average of September, October and November).

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

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

From S&P: Home Prices Extend Gains According to the S&P/Case-Shiller Home Price Indices

Data through November 2012, released today by S&P Dow Jones Indices for its S&P/Case-Shiller1 Home Price Indices ... showed home prices rose 4.5% for the 10-City Composite and 5.5% for the 20-City Composite in the 12 months ending in November 2012.

“The November monthly figures were stronger than October, with 10 cities seeing rising prices versus seven the month before.” says David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. Phoenix and San Francisco were both up 1.4% in November followed by Minneapolis up 1.0%. On the down side, Chicago was again amongst the weakest with a drop of 1.3% for November.

“Winter is usually a weak period for housing which explains why we now see about half the cities with falling month-to-month prices compared to 20 out of 20 seeing rising prices last summer. The better annual price changes also point to seasonal weakness rather than a reversal in the housing market. Further evidence that the weakness is seasonal is seen in the seasonally adjusted figures: only New York saw prices fall on a seasonally adjusted basis while Cleveland was flat.

Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10 and Composite 20 indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 30.7% from the peak, and up 0.5% in November (SA). The Composite 10 is up 5.3% from the post bubble low set in March (SA).

The Composite 20 index is off 29.8% from the peak, and up 0.6% (SA) in November. The Composite 20 is up 6.0% from the post-bubble low set in March (SA).

The second graph shows the Year over year change in both indices.

The Composite 10 SA is up 4.5% compared to November 2011.

The Composite 20 SA is up 5.5% compared to November 2011. This was the sixth consecutive month with a year-over-year gain since 2010 (when the tax credit boosted prices temporarily).  This was the largest year-over-year gain for the Composite 20 index since 2006.

The third graph shows the price declines from the peak for each city included in S&P/Case-Shiller indices.

Prices increased (SA) in 18 of the 20 Case-Shiller cities in November seasonally adjusted (also 10 of 20 cities increased NSA). Prices in Las Vegas are off 57.6% from the peak, and prices in Dallas only off 3.8% from the peak. Note that the red column (cumulative decline through November 2012) is above previous declines for all cities.

This was slightly below the consensus forecast for a 5.8% YoY increase. I'll have more on prices later.

by Calculated Risk on 1/28/2013 08:58:00 PM

From the WSJ: Bank 'Stress Tests' to Be Released Over 2 Days

The Federal Reserve said Monday that it will release the results of the latest "stress tests" for the nation's 19 largest banks over two separate days in March.
...
The Fed said it will release on March 7 scores assessing how banks would hold up under deteriorating economic and financial-market conditions. On March 14, the Fed will reveal whether the 19 banks will be permitted to repurchase stock or pay dividends.
...
Unlike previous years, banks whose dividend or share-buyback plans would cause them to fail the central bank's test will essentially be allowed a mulligan, giving them the chance to pare back or alter their plan to meet Fed thresholds before the official results are released.

Here is the Federal Reserve press release.

Tuesday economic releases:
• At 9:00 AM ET, S&P/Case-Shiller House Price Index for November. Although this is the November report, it is really a 3 month average of September, October and November. The consensus is for a 5.8% year-over-year increase in the Composite 20 index (NSA) for November. The Zillow forecast is for the Composite 20 to increase 5.3% year-over-year, and for prices to increase 0.4% month-to-month seasonally adjusted.

• At 10:00 AM, Conference Board's consumer confidence index for January. The consensus is for the index to be unchanged at 65.1.

• Also at 10:00 AM, the Q4 Housing Vacancies and Homeownership report from the Census Bureau will be released. This report is frequently mentioned by analysts and the media to report on the homeownership rate, and the homeowner and rental vacancy rates. However, this report doesn't match other measures (like the decennial Census and the ACS) and this survey probably shouldn't be used to estimate the excess vacant housing supply.

by Calculated Risk on 1/28/2013 03:30:00 PM

One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'll be tracking inventory weekly for the next few months.

If inventory does bottom, we probably will not know for sure until late in the year. In normal times, there is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then peaking in mid-to-late summer.

The NAR data is monthly and released with a lag.  However Ben at Housing Tracker (Department of Numbers) kindly sent me some weekly inventory data for the last several years. This is displayed on the graph below as a percentage change from the first week of the year.

In 2010 (blue), inventory followed the normal seasonal pattern, however in 2011 and 2012, there was only a small increase in inventory early in the year, followed by a sharp decline for the rest of the year.

So far - through January - it appears inventory is increasing at a more normal rate.

Click on graph for larger image.

Note: the data is a little weird for early 2011 (spikes down briefly).

The key will be to see how much inventory increases over the next few months. In 2010, inventory was up 8% by early March, and up 15% by the end of March.

For 2011 and 2012, inventory only increased about 5% at the peak.

So far in 2013, inventory is up 3.7%, and the next few months will be very interesting for inventory!

by Calculated Risk on 1/28/2013 11:38:00 AM

From the Dallas Fed: Texas Manufacturing Activity Strengthens in January

Texas factory activity rose sharply in January, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key measure of state manufacturing conditions, rose from 3.5 to 12.9, which is consistent with faster growth.

Other measures of current manufacturing activity also indicated stronger growth in January. The new orders index jumped 13 points to 12.2, its highest reading since March 2011. The capacity utilization index shot up from 2.1 to 14.0, implying utilization rates increased faster than last month. The shipments index rose 9 points to 21.9, indicating shipments quickened in January.

Perceptions of broader business conditions were more positive in January. The general business activity index increased from 2.5 to 5.5, its best reading since March. The company outlook index also rose sharply to 12.6, largely due to a drop in the share of firms reporting a worsened outlook from 10 percent in December to 6 percent in January.

Labor market indicators reflected a sharp increase in hiring but flat workweeks.

This was the strongest regional manufacturing report for January and above expectations of a reading of 4.0 for the general business activity index.

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

Click on graph for larger image.

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

The average of the five regional surveys turned negative again.

The ISM index for January will be released Friday, Feb 1st, and these surveys suggest another weak reading - and probably indicating contraction (below 50). Note: The Markit Flash index was surprisingly strong in January.

by Calculated Risk on 1/28/2013 10:00:00 AM

From the NAR: Pending Home Sales Down in December but Remain on Uptrend

The Pending Home Sales Index,* a forward-looking indicator based on contract signings, fell 4.3 percent to 101.7 in December from 106.3 in November but is 6.9 percent higher than December 2011 when it was 95.1. The data reflect contracts but not closings.
...
Lawrence Yun , NAR chief economist, said there is an uneven uptrend. "The supply limitation appears to be the main factor holding back contract signings in the past month. Still, contract activity has risen for 20 straight months on a year-over-year basis," he said. "Buyer interest remains solid, as evidenced by a separate Realtor® survey which shows that buyer foot traffic is easily outpacing seller traffic."

Yun said shortages of available inventory are limiting sales in some areas. "Supplies of homes costing less than $100,000 are tight in much of the country, especially in the West, so first-time buyers have fewer options," he said ...

The PHSI in the Northeast fell 5.4 percent to 78.8 in December but is 8.4 percent higher than December 2011. In the Midwest the index rose 0.9 percent to 104.8 in December and is 14.4 percent above a year ago. Pending home sales in the South declined 4.5 percent to an index of 111.5 in December but are 10.1 percent higher December 2011. In the West the index fell 8.2 percent in December to 101.0 and is 5.3 percent below a year ago.

Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in January and February.

As I've noted several times, with limited inventory at the low end and fewer foreclosures, we might see flat or even declining existing home sales. The key for sales is that the number of conventional sales is increasing while foreclosure and short sales decline.

by Calculated Risk on 1/28/2013 09:04:00 AM

People frequently ask how a sector that currently accounts for 2.5% of the US economy can be so important. First, residential investment has large swings during the business cycle, and will probably increase sharply over the next few years. Second, there are spillover effects from housing - meaning housing has a much larger impact on overall economic activity than just "residential investment".

We are starting to see some signs of spillover from Kate Linebaugh and James Hagerty at the WSJ: From Power Tools to Carpets, Housing Recovery Signs Mount

Companies that sell power tools, air conditioners, carpet fibers, furniture and cement mixers are reporting stronger sales for the fourth quarter, providing further evidence that a turnaround in the housing market is taking hold.

... executives at companies exposed to housing are growing more optimistic. Improvement in the sector could help broad tracts of the economy by creating jobs, improving consumer confidence and boosting property-tax receipts for municipalities. Construction typically is a big job creator during expansions, though the industry has been slow to staff up during the current recovery.

"The housing recovery will help lift businesses that have long been dormant," said Mark Vitner, senior economist at Wells Fargo. "People will be fixing up homes to put them up for sale—buying new air conditioners, painting, fixing roofs. As the new-home market picks up, that really feeds into [gross domestic product]."

Weekend:
• Summary for Week Ending Jan 25th
• Schedule for Week of Jan 27th
• Thresholds for QE
• Me, Me, Me

by Calculated Risk on 1/27/2013 09:16:00 PM

This is related to my earlier post on Thresholds for QE, from Binyamin Appelbaum at the NY Times: At Fed, Nascent Debate on When to Slow Asset Buying

The looming question is how much longer the asset purchases will continue.

... the discussion already has begun to swing toward informal thresholds.

Mr. Rosengren said last year that the Fed should certainly continue the purchases until the unemployment rate declines at least below 7.25 percent.

James Bullard, president of the Federal Reserve Bank of St. Louis ... [told] CNBC that he expected the unemployment rate to drop to near 7 percent by the end of the year and that it would then be appropriate for the Fed to consider suspending its program of asset purchases.

This discussion is just starting, and I don't expect any significant announcements after the FOMC meeting this week.

The Asian markets are mostly green tonight; the Shanghai Composite index is up 1%.

From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures and DOW are flat (fair value).

Oil prices have moved up a little recently with WTI futures at $95.97 per barrel and Brent at $113.27 per barrel. Gasoline prices are up about 5 cents over the last 10 days.

Monday:
• At 8:30 AM ET, Durable Goods Orders for December from the Census Bureau. The consensus is for a 1.6% increase in durable goods orders.

• At 10:00 AM, the NAR will release their Pending Home Sales Index for December. The consensus is for a 0.3% decrease in the index.

• At 10:30 AM, the Dallas Fed Manufacturing Survey for January will be released. This is the last of the regional surveys for January. The consensus is a decrease to 4.0 from 6.8 in December (above zero is expansion).

Weekend:
• Summary for Week Ending Jan 25th
• Schedule for Week of Jan 27th
• Thresholds for QE
• Me, Me, Me

by Calculated Risk on 1/27/2013 05:35:00 PM

Fun on a Sunday with a hat tip to reader Jeff for suggesting this post.

Last year I posted a photo of the early construction phase of the PIMCO Taj Mahal. Now they are working on the interior of the building (building on the left).

The question is: Does completion of the PIMCO building mark the top for bond prices?


Earlier:
• Summary for Week Ending Jan 25th
• Schedule for Week of Jan 27th
• Thresholds for QE
• Me, Me, Me

by Calculated Risk on 1/27/2013 02:42:00 PM

In the schedule for this coming week, I mentioned there is a two day Federal Open Market Committee (FOMC) meeting ending on Wednesday, January 30th with the FOMC announcement expected at 2:15 PM ET on Wednesday. No significant changes are expected at this meeting.

At the last meeting, the FOMC set "thresholds" for raising the Fed Funds rate. From the December FOMC statement:

"[The FOMC] anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance."
emphasis added

An interesting question is if the FOMC will set thresholds for reducing or ending the current $85 billion per month in asset purchases (aka Quantitative Easing or QE). Goldman Sachs chief economist Jan Hatzius discussed this possibility last week:

"The rationale for QE thresholds is similar to that for funds rate thresholds, namely that they would help the financial markets understand the Fed's reaction function with respect to changes in the economic outlook. If the committee adopted such an approach, the most likely thresholds would be 7.25% for the unemployment rate, 2.5% for the 1-2 year PCE inflation outlook, and "well anchored" inflation expectations. We would also expect an additional "out," namely that QE must not impair market functioning or create financial imbalances.

Any move to QE thresholds would probably not occur until the spring or summer of 2013. But the future of QE, the criteria for slowing or ending it, and perhaps even the question of whether QE thresholds are desirable in principle are likely to be on the FOMC's agenda as soon as next week."

Boston Fed President Eric Rosengren discussed this in a speech last year:

"My own personal assessment is that as long as inflation and inflation expectations are expected to remain well-behaved in the medium term, we should continue to forcefully pursue asset purchases at least until the national unemployment rate falls below 7.25 percent and then assess the situation.

I think of this number as a threshold, not as a trigger – and the distinction is important. I think of a trigger as a set of conditions that necessarily imply a change in policy. A threshold, unlike a trigger, does not necessarily precipitate a change in policy."

Based on the current FOMC projections of the unemployment rate, this threshold would not be reached until some time in 2014. I don't expect QE thresholds to be announced this week, but this might happen later this year.

by Calculated Risk on 1/27/2013 10:32:00 AM

After this ... enough about me! From Alejandro Lazo at the LA Times: Blogger keeps finger on pulse of housing market. An excerpt:

These days, Calculated Risk has become a go-to source for Wall Street, the media, academics and anyone else looking for authoritative analysis of housing and the broader economy. When McBride makes a prediction — as when he called a housing bottom early in 2012 — the housing world takes note.

"If you only follow one economics blog, it has to be Calculated Risk," said James Hamilton, an economics professor at UC San Diego. "If you find yourself reaching a different conclusion from Bill about where the economy is headed, my recommendation is think again."

Although many economics blogs have ideological slants, Calculated Risk established a reputation as an objective source of commentary on an increasingly politicized topic. The blog's name — borrowed from that of a friend's boat — accurately implies an impartial, yet edgy, take on the economy.

But McBride himself has remained somewhat a mystery. Even while promoting his work, McBride shunned the spotlight personally. He wrote anonymously during the first years he blogged, which only heightened interest among a growing number of followers.

"He was one of the first people to stand up and, objectively, just by brutally falling back on the facts, just say that the emperor didn't have any clothes," said longtime reader Stan Humphries, Zillow.com's chief economist. "It was this deep mystery about who this guy actually was. I remember the first time I went and met him, it was like meeting Batman."

On Friday, from From Nick Timiraos at the WSJ: Six Housing Forecasters Who Got Things Right in 2012

After correctly calling the top of sales activity in 2005 and prices in 2006, [McBride] proclaimed last February that the “housing bottom is here” in a blog post that laid out all the dirty details. “I’ve tried over the years to call the turns when they arrive. I’m trying to call it when it happens and not wait six months or a year,” said Mr. McBride in an interview last February.

Saturday:
• Summary for Week Ending Jan 25th
• Schedule for Week of Jan 27th