by Calculated Risk on 2/22/2013 09:16:00 AM

Joseph Cotterill at the FT Alphaville blog linked to a post on lumber prices last night: Listen to Lumber. The post included a graph on lumber prices over the last few months, and showed a fairly sharp decline in future prices recently. The author wrote:

Over the past few years, the strength in lumber proved to be a leading indicator for the bullish action we had seen in the homebuilders and, frankly, all housing related stocks.

This week, though, lumber has sold “limit down” ...

I have no comment on housing stocks, but I suspect this decline is either just "noise" following a large price increase, or more supply coming back on the market (remember many mills closed during the housing bust, and I suspect some are coming back online). Back in 2010, after the end of the housing tax credit, I noted that lumber prices collapsed. But the dynamics were different (that was obviously tax credit related and not a real recovery).

Click on graph for larger image in graph gallery.

This graph puts the recent decline in context. This graph shows two measures of lumber prices: 1) from Random Lengths through last week (via NAHB), and 2) CME futures (through today).

The recent decline in CME futures hardly shows up.

by Calculated Risk on 2/21/2013 06:41:00 PM

This morning I posted a graph of mortgage delinquencies by "bucket". The graph I posted did not include Q4 2012 (I've updated the previous post). Here is the correct graph showing the improvement in Q4:

Click on graph for larger image in graph gallery.

This graph shows the percent of loans delinquent by days past due.

Loans 30 days delinquent decreased to 3.04% from 3.25% in Q3. This is just below 2007 levels and around the long term average.

Delinquent loans in the 60 day bucket decreased to 1.16% in Q4, from 1.19% in Q3.

The 90 day bucket decreased to 2.89% from 2.96%. This is still way above normal (around 0.8% would be normal according to the MBA).

The percent of loans in the foreclosure process decreased to 3.74% from 4.07% and is now at the lowest level since 2008.

Here was the MBA press release: Mortgage Delinquency and Foreclosure Rates Finished 2012 Down Sharply

And an earlier post on the conference call: Q4 MBA National Delinquency Survey Comments

by Calculated Risk on 2/21/2013 04:15:00 PM

The NAR reported total sales were up 9.1% from January 2012, but conventional sales are probably up closer to 20% (or more) from January 2012, and distressed sales down.  The NAR reported (from a survey):

Distressed homes - foreclosures and short sales - accounted for 23 percent of January sales, down from 24 percent in December and 35 percent in January 2012.

Although this survey isn't perfect, if total sales were up 9.1% from January 2012, and distressed sales declined from 35% of total sales to 23%, this suggests conventional sales were up sharply year-over-year - a good sign.

And what matters the most in the NAR's existing home sales report is inventory. It is active inventory that impacts prices (although the "shadow" inventory could come on the market and keep prices from rising). For existing home sales, look at inventory first and then at the percent of conventional sales.

The NAR reported inventory decreased to 1.74 million units in January, down from 1.83 million in December. This is down 25.3% from January 2012, and down 19% from the inventory level in January 2005 (mid-2005 was when inventory started increasing sharply). This is the lowest level of inventory since December 1999. 

Important: The NAR reports active listings, and although there is some variability across the country in what is considered active, most "contingent short sales" are not included. "Contingent short sales" are strange listings since the listings were frequently NEVER on the market (they were listed as contingent), and they hang around for a long time - they are probably more closely related to shadow inventory than active inventory. However when we compare inventory to 2005, we need to remember there were no "short sale contingent" listings in 2005. In the areas I track, the number of "short sale contingent" listings is also down sharply year-over-year.

Click on graph for larger image.

This graph shows inventory for January since 2001. In 2005 inventory kept rising all year - and that was a clear sign that the housing bubble was ending.  Inventory was very high from 2006 through 2011, and started declining in 2012.

The months-of-supply has fallen to 4.2 months.  Since months-of-supply uses Not Seasonally Adjusted (NSA) inventory, and Seasonally Adjusted (SA) sales, I expect months-of-supply to stop declining in February.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Sales NSA in January (black column) are  above the sales for for 2009 through 2012, but below the bubble years of 2005 and 2006. 

Note that January is usually the weakest month of the year and sales typically increase in March and peak in the summer.

Earlier:
• Existing Home Sales in January: 4.92 million SAAR, 4.2 months of supply

by Calculated Risk on 2/21/2013 02:57:00 PM

Catching up ... the Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.6% annualized rate) in January. The 16% trimmed-mean Consumer Price Index rose 0.2% (2.2% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report. Effective with this release, the median CPI and 16% trimmed-mean CPI have been updated to reflect the annual recalculation of seasonal factors in the monthly CPI report from the BLS.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers was virtually flat 0.0% (0.3% annualized rate) in January. The CPI less food and energy increased 0.3% (3.1% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for January here.

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.1%, the trimmed-mean CPI rose 1.9%, and the CPI less food and energy rose 1.9%. Core PCE is for December and increased 1.4% year-over-year.

On a monthly basis, median CPI was at 2.6% annualized, trimmed-mean CPI was at 2.2% annualized, and core CPI increased 3.1% annualized. Also core PCE for December increased 0.2% annualized.

The inflation report for February will be released on March 15th, a few days before the next Fed meeting.  But with this low level of inflation and the current high level of unemployment, I expect the Fed will keep the "pedal to the metal" at the meeting of March 19th and 20th.

by Calculated Risk on 2/21/2013 12:47:00 PM

A few comments from Mike Fratantoni, MBA Vice President, Single-Family Research and Policy Development, on the Q4 MBA National Delinquency Survey conference call.

• There was a significant drop in most measures of delinquencies.

• Overall delinquencies are still elevated, but the movement is in the right direction.

• Fratantoni expects that we will eventually see lower than historical delinquency rates because of the strong credit quality of recent originations.  In response to a question from me, he said that he expects most deliquency measures will be back to normal in "2 to 3" years, but that it will take much longer for the foreclosure inventory to return to normal because of the backlog in judicial states. Jay Brinkmann, MBA’s Chief Economist and Senior Vice President of Research added that some measures (like the 30 delinquency rate) are already back to normal, and that some measures will take longer than others.

• The FHA is showing strong credit quality for origination in 2010, 2011 and 2012. Most of the delinquent loans are from the 2008 and 2009 vintages.

Click on graph for larger image in graph gallery.

This graph is from the MBA and shows the percent of loans in the foreclosure process by state. Posted with permission.

The top states are Florida (12.15% in foreclosure down from 13.04% in Q3), New Jersey (8.85% down from 8.87%), New York (6.34% down from 6.46%), Illinois (6.33% down from 6.83%), and Nevada (the only non-judicial state in the top 13 at 5.87% down from 5.93%).

As Fratantoni noted, California (2.06% down from 2.63%) and Arizona (2.02% down from 2.51%) are now well below the national average by every measure.

Mike Fratantoni noted that for judicial foreclosure states, it appears foreclosure inventory peaked in Q2 2012 (foreclosure inventory is the number of mortgages in the foreclosure process).  Foreclosure inventory in the judicial states has declined for two consecutive quarters.  This is three years after the peak in foreclosure inventories for non-judicial states.

by Calculated Risk on 2/21/2013 11:44:00 AM

Note: I'll post more on existing home sales soon, and on mortgage delinquencies later today.

From the MBA: Mortgage Delinquency and Foreclosure Rates Finished 2012 Down Sharply

The delinquency rate for mortgage loans on one-to-four-unit residential properties fell to a seasonally adjusted rate of 7.09 percent of all loans outstanding at the end of the fourth quarter of 2012, the lowest level since 2008, a decrease of 31 basis points from the previous quarter, and down 49 basis points from one year ago, according to the Mortgage Bankers Association’s (MBA) National Delinquency Survey, released today at MBA’s National Servicing Conference and Expo in Dallas, Texas.

While delinquency rates typically increase between the third and fourth quarters of the year, even the non-seasonally adjusted delinquency rate dropped 13 basis points to 7.51 percent this quarter from 7.64 percent last quarter.

The delinquency rate includes loans that are at least one payment past due but does not include loans in the process of foreclosure. The percentage of loans on which foreclosure actions were started during the fourth quarter was 0.70 percent, the lowest level since the second quarter of 2007, down 20 basis points from last quarter and down 29 basis points from one year ago. The percentage of loans in the foreclosure process at the end of the fourth quarter was 3.74 percent, the lowest level since the fourth quarter of 2008, down 33 basis points from the third quarter and 64 basis points lower than one year ago.

The serious delinquency rate, the percentage of loans 90 days or more past due or in the process of foreclosure, was 6.78 percent, a decrease of 25 basis points from last quarter, and a decrease of 95 basis points from the fourth quarter of 2011.

“We are seeing large improvements in mortgage performance nationally and in almost every state. The 30 day delinquency rate decreased 21 basis points to its lowest level since mid-2007. With fewer new delinquencies, the foreclosure start rate and foreclosure inventory rates continue to fall and are at their lowest levels since 2007 and 2008 respectively,” said Jay Brinkmann, MBA’s Chief Economist and Senior Vice President of Research.

Click on graph for larger image in graph gallery.

This graph shows the percent of loans delinquent by days past due.

Loans 30 days delinquent decreased to 3.04% from 3.25% in Q3. This is just below 2007 levels and around the long term average.

Delinquent loans in the 60 day bucket decreased to 1.16% in Q4, from 1.19% in Q3.

The 90 day bucket decreased to 2.89% from 2.96%. This is still way above normal (around 0.8% would be normal according to the MBA).

The percent of loans in the foreclosure process decreased to 3.74% from 4.07% and is now at the lowest level since 2008.

I'll have more on the delinquency survey later.

by Calculated Risk on 2/21/2013 10:00:00 AM

The NAR reports: January Existing-Home Sales Hold with Steady Price Gains, Seller’s Market Developing

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 0.4 percent to a seasonally adjusted annual rate of 4.92 million in January from a downwardly revised 4.90 million in December, and are 9.1 percent above the 4.51 million-unit pace in January 2012.

Total housing inventory at the end of January fell 4.9 percent to 1.74 million existing homes available for sale, which represents a 4.2-month supply 2 at the current sales pace, down from 4.5 months in December, and is the lowest housing supply since April 2005 when it was also 4.2 months.

Listed inventory is 25.3 percent below a year ago when there was a 6.2-month supply. Raw unsold inventory is at the lowest level since December 1999 when there were 1.71 million homes on the market.

Click on graph for larger image.

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

Sales in January 2013 (4.92 million SAAR) were 0.4% higher than last month, and were 9.1% above the January 2012 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory declined to 1.74 million in January down from 1.83 million in December. This is the lowest level of inventory since December 1999. Inventory is not seasonally adjusted, and usually inventory decreases from the seasonal high in mid-summer to the seasonal lows in December and January.

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.

Inventory decreased 25.3% year-over-year in January from January 2012. This is the 23rd consecutive month with a YoY decrease in inventory.

Months of supply declined to 4.2 months in January, the lowest level since April 2005.

This was at expectations of sales of 4.94 million. For existing home sales, the key number is inventory - and the sharp year-over-year decline in inventory is a positive for housing. I'll have more later ...

All current Existing Home Sales graphs

by Calculated Risk on 2/21/2013 08:36:00 AM

The DOL reports:

In the week ending February 16, the advance figure for seasonally adjusted initial claims was 362,000, an increase of 20,000 from the previous week's revised figure of 342,000. The 4-week moving average was 360,750, an increase of 8,000 from the previous week's revised average of 352,750.

The previous week was revised up from 341,000.

The following graph shows the 4-week moving average of weekly claims since January 2000.


Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims increased to 360,750 - the highest 4-week average since the first week of January.

Weekly claims were above the 359,000 consensus forecast.

by Calculated Risk on 2/20/2013 07:37:00 PM

Tomorrow will be busy ...

Thursday economic releases:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 359 thousand from 341 thousand last week.

• Also at 8:30 AM, the Consumer Price Index for January. The consensus is for a 0.1% increase in CPI in January and for core CPI to increase 0.2%.

• At 9:00 AM, The Markit US PMI Manufacturing Index Flash. The consensus is for a decrease to 55.5 from 56.1 in January.

• At 10:00 AM, the January Existing Home Sales report from the National Association of Realtors (NAR). The consensus is for sales of 4.90 million on seasonally adjusted annual rate (SAAR) basis. Sales in December 2012 were 4.94 million SAAR. Economist Tom Lawler is forecasting an increase to a 5.10 million sales rate.

• Also at 10:00 AM, the the Philly Fed manufacturing survey for February. The consensus is for a reading of 1.1, up from minus 5.8 last month (above zero indicates expansion).

• Also at 10:00 AM, the Conference Board Leading Indicators for January will be released. The consensus is for a 0.3% increase in this index.

• Also at 10:00 AM, the MBA's National Mortgage Delinquency Survey for Q4. As usual, I'll be on the conference call (the call is scheduled for 12 PM ET).

by Calculated Risk on 2/20/2013 02:14:00 PM

Note:  My read is the FOMC is modestly more optimistic on the economic outlook, and are prepared to vary the amount of QE asset purchases based on incoming data.

From the Fed: Minutes of the Federal Open Market Committee, January 29-30, 2013. On the outlook:

In their discussion of the economic situation, meeting participants indicated that they viewed the information received during the intermeeting period as suggesting that, apart from some temporary factors that had led to a pause in overall output growth in recent months, the economy remained on a moderate growth path. In particular, participants saw the economic outlook as little changed or modestly improved relative to the December meeting. Most participants judged that there had been some reduction in downside risks facing the economy: Strains in global financial markets had eased somewhat, and U.S. fiscal policymakers had come to a partial resolution of the so-called fiscal cliff. Supported by a highly accommodative stance of monetary policy, the housing sector was strengthening, and the unemployment rate appeared likely to continue its gradual decline. Nearly all participants anticipated that inflation over the medium-term would run at or below the Committee's 2 percent objective.
emphasis added

On varying asset purchases:

Several participants emphasized that the Committee should be prepared to vary the pace of asset purchases, either in response to changes in the economic outlook or as its evaluation of the efficacy and costs of such purchases evolved. For example, one participant argued that purchases should vary incrementally from meeting to meeting in response to incoming information about the economy. A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred. Several others argued that the potential costs of reducing or ending asset purchases too soon were also significant, or that asset purchases should continue until a substantial improvement in the labor market outlook had occurred. A few participants noted examples of past instances in which policymakers had prematurely removed accommodation, with adverse effects on economic growth, employment, and price stability; they also stressed the importance of communicating the Committee's commitment to maintaining a highly accommodative stance of policy as long as warranted by economic conditions. In this regard, a number of participants discussed the possibility of providing monetary accommodation by holding securities for a longer period than envisioned in the Committee's exit principles, either as a supplement to, or a replacement for, asset purchases.

Changes in the size of asset purchases will be something to watch at each FOMC meeting.