by Calculated Risk on 6/27/2013 10:06:00 AM

From the NAR: May Pending Home Sales Reach Highest Level in Over Six Years

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 6.7 percent to 112.3 in May from a downwardly revised 105.2 in April, and is 12.1 percent above May 2012 when it was 100.2; the data reflect contracts but not closings.

Contract activity is at the strongest pace since December 2006 when it reached 112.8; pending sales have been above year-ago levels for the past 25 months.
...
The PHSI in the Northeast was unchanged at 92.3 in May but is 14.3 percent above a year ago. In the Midwest the index jumped 10.2 percent to 115.5 in May and is 22.2 percent higher than May 2012. Pending home sales in the South rose 2.8 percent to an index of 121.8 in May and are 12.3 percent above a year ago. The index in the West jumped 16.0 percent in May to 109.7, but with limited inventory is only 1.1 percent above May 2012.

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

With limited inventory at the low end and fewer foreclosures, we might see flat existing home sales going forward (the NAR is forecasting a 9% increase this year to 5.07 million sales).

by Calculated Risk on 6/27/2013 08:36:00 AM

NOTE: The BEA reported on Personal Income and Outlays for May.

Personal income increased $69.4 billion, or 0.5 percent ... Personal consumption expenditures (PCE) increased $29.0 billion, or 0.3 percent.

The price index for PCE increased 0.1 percent in May ... The PCE price index, excluding food and energy, increased 0.1 percent

The consensus was for a 0.2% increase in personal income in May, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.1%. I'll have more on this report soon.

The DOL reports:

In the week ending June 22, the advance figure for seasonally adjusted initial claims was 346,000, a decrease of 9,000 from the previous week's revised figure of 355,000. The 4-week moving average was 345,750, a decrease of 2,750 from the previous week's revised average of 348,500.

The previous week was revised up from 354,000.

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 345,750.

The 4-week average has mostly moved sideways over the last few months.  Claims were close to the 345,000 consensus forecast.

by Calculated Risk on 6/26/2013 09:59:00 PM

From Cardiff Garcia at the FT Alphaville: Rates and the US housing market

We don’t mean to be entirely dismissive of the prevailing higher rates. The economy didn’t need any shade thrown at one of its few bright spots, especially with the continued fiscal drag and steady-but-unimpressive employment gains. Low rates not only spur along housing but also make credit more affordable for buying durable goods and automobiles, purchases of which often accompany newly formed households.

And there isn’t much evidence (yet) to show that the fundamental supply-side problems we previously discussed have been mitigated, as such improvements would partly depend on the housing market’s continued rebound and wider improvements in the economy.

But at least the higher rates have arrived at a time when the housing market had favourable momentum.

Thursday:
• At 8:30 AM ET, the Personal Income and Outlays report for May. The consensus is for a 0.2% increase in personal income in April, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.1%.

• Also at 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for an decrease to 345 thousand from 354 thousand last week.

• At 10:00 AM, the Pending Home Sales Index for May from the NAR. The consensus is for a 1.0% increase in the index.

• At 11:00 AM, the Kansas City Fed Survey of Manufacturing Activity for June. This is the last of the regional manufacturing surveys for June. The consensus is for a reading of 4 for this survey, up from 2 in May (Above zero is expansion).

by Calculated Risk on 6/26/2013 05:20:00 PM

Several people have asked me about a comment from Fannie Mae chief economist Doug Duncan as quoted in a NY Times article a couple of weeks ago: In a Shift, Interest Rates Are Rising

“There’s no strong correlation between interest rates and home prices,” said Douglas Duncan, chief economist at Fannie Mae.

Duncan is correct.

However, a key difference now compared to earlier periods, is that there is more investor buying. And investors will compare their returns on different investments - and rising rates will probably slow investor demand for real estate, even if they are all cash buyers.   But, in general, I think rising rates might slow price increases but not lead to a decline in prices (we might see some seasonal declines).

I'll post some more thoughts on the relationship between house prices and interest rates (long term readers might remember I wrote about this in 2005), but first I'd like to post a couple of graphs.

Click on graph for larger image.

The first graph shows the Corelogic House Price Index (started in 1976) and 30 year fixed mortgage rates as reported by Freddie Mac in their weekly Primary Mortgage Market Survey® .

Even with mortgage rates rising sharply in the late '70s, house prices continued to increase. And there were a few spikes in interest rates (like in 2000) that didn't slow price increases.

The second graph shows the same data, but with house prices in real terms (adjusted for inflation).

Real prices were fairly flat in the late '70s and early '80s ... so maybe the spike in interest rates slowed price increases ... and then the economic weakness in the early '80s kept prices from rising even as mortgage rates declined.

In the early '90s, economic weakness (and the unwinding of a small housing bubble in certain states),  lead to falling real prices even as mortgage rates declined.

The bottom line is other factors (like a stronger economy) have a bigger impact on house prices than changes in mortgage rates.

by Calculated Risk on 6/26/2013 01:59:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for May 2013. In the past month, the indexes increased in 33 states, decreased in eight states, and remained stable in nine, for a one-month diffusion index of 50. Over the past three months, the indexes increased in 43 states, decreased in five, and remained stable in two, for a three-month diffusion index of 76.

Note: These are coincident indexes constructed from state employment data. From the Philly Fed:

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

Click on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In May, 37 states had increasing activity, down from 44 in April (including minor increases). This measure has been and up down over the last few years since the recovery has been sluggish.


Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession.

The map is mostly green again and suggests that the recovery is geographically widespread.

by Calculated Risk on 6/26/2013 11:46:00 AM

Note: The automakers will report June vehicle sales on Tuesday, July 2nd (next Tuesday). Here are a couple of forecasts:

From Reuters: June auto sales on pace for best showing since December '07: study

June auto sales are on track for their best month since before the 2008-2009 sales plunge ... J.D. Power and LMC Automotive said June sales will show a seasonally adjusted annualized rate of 15.7 million vehicles sold, up 7.6 percent from a year ago and the best showing since December 2007.

From TrueCar: June 2013 New Car Sales Expected to Be Up Nearly Eight Percent According to TrueCar; June 2013 SAAR at 15.7M, Highest June SAAR Since 2007

For June 2013, new light vehicle sales in the U.S. (including fleet) is expected to be 1,380,543 units, up 7.8 percent from June 2012 ... The June 2013 forecast translates into a Seasonally Adjusted Annualized Rate ("SAAR") of 15.7 million new car sales, up from 15.3 million in May 2013 and up from 14.4 million in June 2012.

Two key points: 1) sales growth will slow in 2013, and 2) it appears auto sales were solid in June.

Based on the first five months of 2013, it appears auto sales will increase again this year, but not double digit growth like the last few years.  This suggests auto sales will contribute less to GDP growth this year than in the previous three years.

Light Vehicle Sales
	Sales (millions)	Annual Change
2005	16.9	0.5%
2006	16.5	-2.6%
2007	16.1	-2.5%
2008	13.2	-18.0%
2009	10.4	-21.2%
2010	11.6	11.1%
2011	12.7	10.2%
2012	14.4	13.4%
20131	15.2	5.3%
1Sales rate for first five months of 2013.

by Calculated Risk on 6/26/2013 08:45:00 AM

GDP was revised down from a 2.4% annualized real growth rate to 1.8% in Q1. From the BEA:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.8 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the "third" estimate released by the Bureau of Economic Analysis.
...
The downward revision to the percent change in real GDP primarily reflected downward revisions to personal consumption expenditures, to exports, and to nonresidential fixed investment that were partly offset by a downward revision to imports.

Personal consumption expenditure growth was revised down from a 3.4% annualized rate in the 2nd estimate to 2.6% in the 3rd estimate of GDP.

Click on graph for larger image.

Last week I posted Four Charts to Track Timing for QE3 Tapering . Here is an update to the GDP chart.

The current FOMC forecast is for GDP to increase between 2.3% and 2.6% from Q4 2012 to Q4 2013.

The first quarter was below the FOMC projections (red), and it appears the second quarter will also be below the FOMC forecast - if so, then GDP will have to pickup in the 2nd half of 2013 for the Fed to start tapering QE3 purchases in December.

by Calculated Risk on 6/26/2013 07:59:00 AM

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

The Refinance Index decreased 5 percent from the previous week to the lowest level since November 2011. The seasonally adjusted Purchase Index increased 2 percent from one week earlier.
...
“Interest rates moved up sharply following the Federal Reserve press conference last Wednesday where it was indicated that the Fed could begin tapering their asset purchases later this year,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “Mortgage rates increased by the most in a single week since 2011, and refinance application volume dropped to its lowest level in almost two years. However, applications for conventional purchase loans picked up by more than 3 percent over the week, and total purchase applications were 16 percent higher than one year ago, indicating that homebuyers are not yet dissuaded by the increase in mortgage rates. Government purchase applications dropped again, likely a function of the recent increase in FHA mortgage insurance premiums.”
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,500 or less) increased to 4.46 percent, the highest rate since August 2011, from 4.17 percent, with points decreasing to 0.35 from 0.41 (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.

With 30 year mortgage rates near 4.5%, refinance activity has fallen sharply, decreasing in 6 of the last 7 weeks.

This index is down 42% over the last seven weeks.

The second graph shows the MBA mortgage purchase index.  The 4-week average of the purchase index has generally been trending up over the last year, and the 4-week average of the purchase index is up almost 10% from a year ago.

by Calculated Risk on 6/25/2013 10:13:00 PM

Here is a minor indicator that I follow that is at a new record high, from ATA: ATA Truck Tonnage Index Surged 2.3% in May

The American Trucking Associations’ advanced seasonally adjusted (SA) For-Hire Truck Tonnage Index jumped 2.3% in May after falling 0.2% in April. ... In May, the SA index equaled 126.0 (2000=100) versus 123.2 in April. May 2013 is the highest level on record, surpassing the previous high in December 2011(124.3). Compared with May 2012, the SA index surged 6.7%, which is the largest year-over-year gain since December 2011.

“After bouncing around in a fairly tight band during the previous three months, tonnage skyrocketed in May,” ATA Chief Economist Bob Costello said. Some of the increase is attributable to factory output rising in May for the first time since February (+0.2%) and retail sales performing stronger than expected in May (+0.6%). Costello added, “The 6.8% surge in new housing starts during May obviously pushed tonnage up as home construction generates a significant amount of truck tonnage.”
emphasis added

Click on graph for larger image.

Here is a long term graph that shows ATA's For-Hire Truck Tonnage index.

The dashed line is the current level of the index.

The index is fairly noisy, but the index is at a record high and is up solidly year-over-year.

Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index. Expect a spike in mortgage rates, and a decline in refinance activity.

• At 8:30 AM, the third estimate of Q1 GDP will be released by the BEA. The consensus is that real GDP increased 2.4% annualized in Q1, unrevised from the 2nd estimate.

by Calculated Risk on 6/25/2013 03:32:00 PM

Case-Shiller, CoreLogic and others report nominal house prices, and it is also useful to look at house prices in real terms (adjusted for inflation) and as a price-to-rent ratio.

As an example, if a house price was $200,000 in January 2000, the price would be close to $275,000 today adjusted for inflation.  This is why economists also look at real house prices (inflation adjusted).

Note: If were I "wishcasting" as opposed to "forecasting", I'd like to see real house prices mostly move sideways for a few years.  But given the low level of inventory, pent up demand, significant investor buying, and some bounce off the bottom in certain areas - real prices have been increasing fairly rapidly over the last year.  I expect more inventory to come on the market and for price increases to slow.

Earlier: Case-Shiller: Case-Shiller: Comp 20 House Prices increased 12.1% year-over-year in April

Nominal House Prices

The first graph shows the quarterly Case-Shiller National Index SA (through Q1 2013), and the monthly Case-Shiller Composite 20 SA and CoreLogic House Price Indexes (through March) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is back to Q3 2003 levels (and also back up to Q4 2008), and the Case-Shiller Composite 20 Index (SA) is back to February 2004 levels, and the CoreLogic index (NSA) is back to April 2004.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to Q2 2000 levels, the Composite 20 index is back to September 2001, and the CoreLogic index back to October 2001.

In real terms, house prices are back to early '00s levels.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to Q2 2000 levels, the Composite 20 index is back to February 2002 levels, and the CoreLogic index is back to April 2002.

In real terms - and as a price-to-rent ratio - prices are mostly back to early 2000 levels.

Nominal Prices: Cities relative to Jan 2000


The last graph shows the bubble peak, the post bubble minimum, and current nominal prices relative to January 2000 prices for all the Case-Shiller cities in nominal terms.

As an example, at the peak, prices in Phoenix were 127% above the January 2000 level. Then prices in Phoenix fell slightly below the January 2000 level, and are now up 34% above January 2000. Some cities - like Denver and Dallas - are at new highs.  Detroit prices are still below the January 2000 level.