by Calculated Risk on 3/13/2013 07:00:00 AM

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

The Refinance Index decreased 5 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier.
...
“The announcement of stronger than anticipated job growth last week led to an increase in interest rates, with the 30 year fixed mortgage rate in our survey reaching the highest level in more than six months,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “Refinance applications declined as a result, but remain high given the steady flow of HARP applications.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 3.81 percent, the highest rate since August 2012, from 3.70 percent, with points remaining unchanged at 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.

The first graph shows the refinance index.

There has been a sustained refinance boom for over a year, and 76 percent of all mortgage applications are for refinancing.

Refinance activity will probably slow in 2013.

The second graph shows the MBA mortgage purchase index.  The 4-week average of the purchase index has generally been trending up (slowly) over the last six months.

This index will probably continue to increase as conventional home purchase activity increases.

by Calculated Risk on 3/12/2013 08:59:00 PM

Retail sales for February will be released tomorrow.  One of the key questions is how much the payroll tax hike is slowing personal consumption expenditures this year, and the report tomorrow might give some hints.  

However, since gasoline prices increased sharply in February (from an average of $3.39 per gallon in January to $3.74 per gallon in February), gasoline sales will push up the headline number for retail sales - so it will be important to look at the details.

Another complicating factor is that the fiscal agreement was reached at a very late date, delaying tax refunds this year - and that has impacted sales at some retailers such as Walmart.

From Merrill Lynch analysts on retail sales:

We expect a weak retail sales report in February. Although the headline should show modest improvement in spending, the guts of the report likely will reveal weakness. We forecast total retail sales to increase 0.6%, owing to higher gasoline prices and a pickup in building material sales. Core control retail sales, which nets out autos, gasoline and building materials, is likely to decline 0.3%. ... There are four factors weighing on consumption in February: delayed tax refunds, burden of higher gasoline prices, poor weather conditions and lower take-home pay from the payroll tax hike in January. ... Looking ahead, a key question will be whether this softness in consumer spending persists. This likely will be determined by the pace of job growth, and hence labor income, and the impact of wealth appreciation on consumer confidence. In our view, the risk is that consumer spending will remain sluggish over the next few months.
emphasis added

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

• At 8:30 AM, Retail sales for February will be released. The consensus is for retail sales to increase 0.5% in February (boosted by higher gasoline prices), and to increase 0.5% ex-autos.

• At 10:00 AM, the Manufacturing and Trade: Inventories and Sales (business inventories) report for January. The consensus is for a 0.3% increase in inventories.

by Calculated Risk on 3/12/2013 06:47:00 PM

Long time readers remembers when Jim the Realtor brought us stories of all the foreclosures in San Diego. Times have changed. The video today shows the buying frenzy ... amazing.

by Calculated Risk on 3/12/2013 03:41:00 PM

Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008.

The following data is calculated from the Fed's Flow of Funds data and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is little MEW right now - and normal principal payments and debt cancellation.

For Q4 2012, the Net Equity Extraction was minus $34 billion, or a negative 1.1% of Disposable Personal Income (DPI). This is the smallest negative "MEW" since Q1 2009. This is not seasonally adjusted.

Click on graph for larger image in new window.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

There are smaller seasonal swings right now, perhaps because there is a little actual MEW (this is heavily impacted by debt cancellation right now).

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding declined slowly in Q4. Mortgage debt has declined by $1.2 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. With residential investment increasing, and a slower rate of debt cancellation, it is possible that MEW will turn positive again in the next few quarters.

For reference:

Dr. James Kennedy also has a new method for calculating equity extraction: "A Simple Method for Estimating Gross Equity Extracted from Housing Wealth". Here is a companion spread sheet (the above uses my simple method).

For those interested in the last Kennedy data included in the graph, the spreadsheet from the Fed is available here.

by Calculated Risk on 3/12/2013 12:55:00 PM

Weekly Update: One of key questions for 2013 is Will Housing inventory bottom this year?. Since this is a very important question, I'm tracking inventory weekly this 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 March 11th - it appears inventory is increasing at a sluggish rate. Housing Tracker reports inventory is down -22.7% compared to the same week in 2012 - still falling fast year-over-year.

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 and then declined for the remainder of the year.

So far in 2013, inventory is up 5.0%. I expect smaller year-over-year declines in inventory all through the year, but right now I think inventory will not bottom until 2014.

by Calculated Risk on 3/12/2013 10:18:00 AM

From the BLS: Job Openings and Labor Turnover Summary

There were 3.7 million job openings on the last business day of January, little changed from December, the U.S. Bureau of Labor Statistics reported today. The hires rate (3.1 percent) and separations rate (3.0 percent) also were little changed in January. ...
...
Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... In January, the quits rate was unchanged at 1.6 percent. The quits rate edged up for total private in January but was unchanged for government.

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for January, the most recent employment report was for February.

Click on graph for larger image.

Notice that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings increased in January to 3.693 million, up from 3.612 million in December. The number of job openings (yellow) has generally been trending up, and openings are up 8% year-over-year compared to January 2012.

Quits increased in January, and quits are up 13% year-over-year and at the highest level since 2008. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

Not much changes month-to-month in this report, but the trend suggests a gradually improving labor market.

by Calculated Risk on 3/12/2013 09:08:00 AM

From the National Federation of Independent Business (NFIB): Small Business Confidence Improves a Bit

The NFIB Small Business Optimism Index increased 1.9 points in February to 90.8. While a nice improvement over the last several reports, the Index remains on par with the 2008 average and below the trough of the 1991-92 and 2001-02 recessions. The direction of February’s change is positive, but not indicative of a surge in confidence among small-business owners. ...

Weak sales is still the top business problem for 18% of owners.

Click on graph for larger image.

This graph shows the small business optimism index since 1986. The index increased to 90.8 in February from 88.9 in January.

Note: Small businesses have a larger percentage of real estate and retail related companies than the overall economy.  Lack of demand remains the main problem for small business owners.

by Calculated Risk on 3/11/2013 08:17:00 PM

Here is Nomura's current US outlook:

Activity: In the 3 1/2 years since the Great Recession ended, real GDP has grown at a lackluster 2.1% pace and is tracking close to that pace in Q1 2013.

Lower-income households are in the process of ratcheting down spending in response to a higher tax burden, but aggregate demand is being held up by higher-income spenders reacting to rising wealth from equities and real estate. Fiscal policy remains a source of uncertainty for the outlook, but risks of a policy misstep have diminished. Our forecast for the US economy assumes that half of the 1 March spending cuts will be implemented this year, but it is looking more likely that the full sequester will remain in place. If so, our assumptions for government spending will need to be revisited. Congress is working to complete a continuing resolution (CR) before the 22 March Easter holiday break. The CR is expected to fund the federal government through the end of this fiscal year (30 September).

Providing a buffer against fiscal headwinds, the housing recovery continues to deepen. Home price increases are providing support for household confidence and we expect the wealth effect from real estate to help support aggregate demand.

Inflation: Our forecast for consumer price inflation to remain below 2% for the forecast horizon reflects the effects of a substantial output gap that has emerged from three years of sub-par growth in the economy, and limited risks from commodity prices.

Policy: We expect the FOMC to maintain its current longer-term asset purchase program through Q3 2013, and then begin to taper purchases as the recovery strengthens and outlook improves convincingly. Upcoming negotiations in Washington over the reprogramming of spending cuts and the budget are likely to prove very contentious.

Risks: Fiscal policy missteps and slower global growth remain the dominant risks to the outlook.

Nomura is projecting real GDP to increase 1.9% in 2013 (another sluggish year), and for the unemployment rate to fall to 7.5% in Q4. For housing starts, Nomura is forecasting an increase to 1.02 million starts from 780 thousand in 2012 (a 30% increase).

Tuesday economic releases:
• At 7:30 AM ET, NFIB Small Business Optimism Index for February. The consensus is for an increase to 90.1 from 88.9 in January.

• At 10:00 AM, Job Openings and Labor Turnover Survey for January from the BLS. The number of job openings has generally been trending up, but openings were only up 2% year-over-year in December.

by Calculated Risk on 3/11/2013 03:26:00 PM

Economist Tom Lawler sent me the table below of short sales and foreclosures for several selected cities in February. 

Look at the right two columns in the table below (Total "Distressed" Share for Feb 2013 compared to Feb 2012). In every area that has reported distressed sales so far, the share of distressed sales is down year-over-year - and down significantly in most areas. 

Also there has been a decline in foreclosure sales just about everywhere. Look at the middle two columns comparing foreclosure sales for Feb 2013 to Feb 2012. Foreclosure sales have declined in all these areas, and some of the declines have been stunning (the Nevada sales were impacted by the new foreclosure law). 

Also there has been a shift from foreclosures to short sales. In all of these areas, short sales now out number foreclosures.

I think this is important: Imagine that the number of total existing home sales doesn't change over the next year - some people would argue that is "bad" news and the housing market isn't recovering. But also imagine that the share of distressed sales declines 20%, and conventional sales increase to make up the difference. That would be a positive sign - and that is what appears to be happening.

An example would be Sacramento (I posted data on Sacramento earlier today).  In Sacramento, total sales were down 14% in Feb 2013 compared to Feb 2012, but conventional sales were up 42%!  I'd say that is a positive sign.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share
	13-Feb	12-Feb	13-Feb	12-Feb	13-Feb	12-Feb
Las Vegas	37.9%	29.3%	10.2%	42.0%	48.1%	71.3%
Reno	37.0%	28.0%	13.0%	42.0%	50.0%	70.0%
Phoenix	15.0%	28.1%	13.8%	23.3%	28.8%	51.4%
Sacramento	30.3%	31.9%	13.5%	33.9%	43.8%	65.8%
Mid-Atlantic (MRIS)	13.6%	16.4%	12.1%	17.5%	25.6%	33.9%
Hampton Roads					34.2%	36.0%
Charlotte					15.9%	18.7%
Memphis*			27.8%	36.6%
*share of existing home sales, based on property records

by Calculated Risk on 3/11/2013 12:10:00 PM

Last November, I mentioned a recession probability chart from the St Louis Fed that was making the rounds, and that some people were misusing the chart to argue a new recession was starting in the US.  Below is an update to the chart.

A few weeks later - also in November - the author, University of Oregon Professor Jeremy Piger, posted some FAQs and data for the chart online. Professor Piger writes:

2. How should I interpret these probabilities as a recession signal?

Historically, three consecutive months of smoothed probabilities above 80% has been a reliable signal of the start of a new recession, while three consecutive months of smoothed probabilities below 20% has been a reliable signal of the start of a new expansion. For an analysis of the performance of the model for identifying new turning points in real time, see:

Chauvet, M. and J. Piger, “A Comparison of the Real-Time Performance of Business Cycle Dating Methods,” Journal of Business and Economic Statistics, 2008.

Click on graph for larger image.

Here is the current chart from FRED at the St Louis Fed.

Right now, by this method, the odds of the US currently being in a recession are very low (close to zero). Some day I'll be on recession watch again (not in the near future), and this is one of the tools I'll be using.