by Calculated Risk on 10/16/2013 08:12:00 PM

The Senate approved the deal to open the government and pay-the-bills 81 to 18, and the House will vote later. Here is the CSPAN feed. There was never any doubt (in my mind) that the debt ceiling would be raised. And it is good news that the shutdown will be over (it was very expensive).

Thursday:
• 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 330 thousand from 374 thousand last week. This data is gathered by the states and will continue to be released.

• DELAYED: the Housing Starts for September. The consensus is for total housing starts to increase to 913 thousand (SAAR) in September.

• DELAYED: the Fed was scheduled to release Industrial Production and Capacity Utilization for September. From the Fed:

The industrial production indexes that are published in the G.17 Statistical Release on Industrial Production and Capacity Utilization incorporate a range of data from other government agencies, the publication of which has been delayed as a result of the federal government shutdown. Consequently, the G.17 release will not be published as scheduled on October 17, 2013. After the reopening of the federal government, the Federal Reserve will announce a publication date for the G.17 release.

The consensus is for a 0.4% increase in Industrial Production, and for Capacity Utilization to increase to 78.1%.

• At 10:00 AM, the Philly Fed manufacturing survey for October. The consensus is for a reading of 15.0, down from 22.3 last month (above zero indicates expansion).

by Calculated Risk on 10/16/2013 03:29:00 PM

From DataQuick: Southland Median Sale Price Dips Month-to-Month, Still Up Sharply From Yr Ago

Southern California home sales in September fell more than usual from August but rose modestly above a year earlier as sales gains for mid- to high-priced properties compensated for declines in sub-$300,000 activity. ... A total of 19,112 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties last month. That was down 17.1 percent from 23,057 sales in August, and up 7.0 percent from 17,859 sales in September 2012, according to San Diego-based DataQuick.

Last month’s sales were 19.9 percent below the average number of sales – 23,862 – in the month of September. Southland sales haven’t been above average for any particular month in more than seven years. September sales have ranged from a low of 12,455 in September 2007 to high of 37,771 in September 2003.

In September, foreclosure resales – homes foreclosed on in the prior 12 months – accounted for 6.3 percent of the Southland resale market. That was down from a revised 6.9 percent the month before and down from 16.6 percent a year earlier. Last month’s foreclosure resale rate was the lowest since it was 5.5 percent in May 2007. In the current cycle, foreclosure resales hit a high of 56.7 percent in February 2009.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 13.1 percent of Southland resales last month. That was the lowest level since it was 12.9 percent in May 2009. Last month’s short sale figure was down from an estimated 13.3 percent the month before and down from 28.0 percent a year earlier.

Absentee buyers – mostly investors and some second-home purchasers – bought 26.3 percent of the Southland homes sold last month, which is the lowest share for any month since it was 25.1 percent in November 2011. Last month’s level was down from a revised 26.7 percent the month before and down from 27.7 percent a year earlier. The absentee share has ratcheted down gradually each month this year since hitting a record 32.4 percent in January.
emphasis added

This continues to move in the right direction (fewer distressed sales, fewer absentee buyers).

by Calculated Risk on 10/16/2013 02:03:00 PM

Fed's Beige Book "Prepared at the Federal Reserve Bank of Chicago and based on information collected on or before October 7, 2013. This document summarizes comments received from business and other contacts outside the Federal Reserve and is not a commentary on the views of Federal Reserve officials. "

Reports from the twelve Federal Reserve Districts suggest that national economic activity continued to expand at a modest to moderate pace during the reporting period of September through early October. Eight Districts reported similar growth rates in economic activity as during the previous reporting period, while growth slowed some in the Philadelphia, Richmond, Chicago, and Kansas City Districts. Contacts across Districts generally remained cautiously optimistic in their outlook for future economic activity, although many also noted an increase in uncertainty due largely to the federal government shutdown and debt ceiling debate.

And on real estate:

Construction and real estate activity continued to improve in September. Residential construction increased moderately on balance, growing at a stronger pace in the Minneapolis and Dallas Districts but only slightly in Richmond and Philadelphia. Multifamily construction remained stronger than single-family construction in a number of Districts. Residential real estate activity continued to improve at a moderate pace in most Districts, as home sales and prices continued to rise and inventories remained low. Home sales in the New York and Dallas Districts were strong, with the exception of the Jersey Shore, which is still recovering from Hurricane Sandy. The Philadelphia, Atlanta, and Chicago Districts experienced a more modest improvement in home sales. A number of Districts reported concerns from homebuilders and realtors over rising mortgage rates. However, contacts in the Dallas District indicated that rising interest rates were not hurting affordability and contacts in the Boston District suggested some boost to activity by homebuyers entering the market in anticipation of future increases in rates. Nonresidential construction activity remained modest, but varied by market and District. Growth was strong in the Minneapolis District, but up only slightly in Richmond, Atlanta, and Philadelphia. The Cleveland, Chicago, and St. Louis Districts reported increased activity for industrial building, Cleveland noted strong demand from the healthcare sector, and redevelopment of vacant retail space picked up in Boston. Leasing activity continued to improve modestly in most Districts, but was particularly strong in the Dallas District. A number of Districts reported that vacancy rates continued to fall, rents rose, and the outlook for commercial real estate was generally positive.
emphasis added

Overall this was similar to the previous beige book with economic activity increasing at a "modest to moderate" pace.

by Calculated Risk on 10/16/2013 12:00:00 PM

The key problem with short sales is fraud. There are many types of short sales fraud (money under the table, agents not actually marketing property, etc.), but this was apparently blatant.

From the LA Times: BofA employee accused of taking bribes to rig short sales (ht Brian)

A Bank of America Corp. employee assigned to deal with delinquent mortgages has been arrested on federal charges of accepting more than $1 million in bribes to allow homes to be sold far below their market value.
...
A 28-count grand jury indictment, unsealed Tuesday, listed 18 properties allegedly sold in late 2010 and early 2011 at prices below those the bank would have approved. ... Most of the homes were in the San Fernando Valley, but others were in Corona, Coto de Caza, Beverly Hills and Bel Air.

“The buyers would either resell the homes at the actual property values or in some cases would refinance the property at the actual value, thereby extracting profits on the deals,” [Ariel Neuman, an assistant U.S. attorney in Los Angeles] said.

I'm shocked.

by Calculated Risk on 10/16/2013 10:00:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) declined in October to 55 from 57 in September. Any number above 50 indicates that more builders view sales conditions as good than poor.  (September was revised down from 58 to 57).

From the NAHB: Builder Confidence Down in October; NAHB Estimates Sept. Housing Starts will Approach 900,000 Units

Builder confidence in the market for newly built, single-family homes fell two points in October from a downwardly revised reading in the previous month to a level of 55 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI) released today.

“A spike in mortgage interest rates along with the paralysis in Washington that led to the government shutdown and uncertainty regarding the nation’s debt limit have caused builders and consumers to take pause,” said NAHB Chief Economist David Crowe. “However, interest rates remain near historic lows and we don’t expect the level of rates to have a major impact on sales and starts going forward. Once this government impasse is resolved, we expect builder and consumer optimism will bounce back.”
...
All of the HMI’s three components each fell two points in October. The component gauging current sales conditions registered 58, while the component gauging sales expectations in the next six months posted a reading of 62 and the component gauging traffic of prospective buyers was 44.

Looking at the three-month moving averages for regional HMI scores, the South held steady at 56, the West declined a single point to 60 and the Northeast fell three points to 38. The Midwest posted a one-point gain to 64.
emphasis added

Click on graph for larger image.

This graph compares the NAHB HMI (left scale) with single family housing starts (right scale). This includes the October release for the HMI and the August data for starts (September housing starts were scheduled to be released tomorrow, but will now be delayed). This was below the consensus estimate of a reading of 57.

by Calculated Risk on 10/16/2013 07:01:00 AM

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

Mortgage applications increased 0.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending October 11, 2013. ...

The Refinance Index increased 3 percent from the previous week. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier. ...
...
“The government shutdown had a notable impact on the mortgage market last week. Purchase applications for government programs dropped by more than 7 percent over the week to their lowest level since December 2007, and the government share of purchase applications dropped to its lowest level in almost three years,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “Conventional purchase applications dropped as well, but not to the same extent, falling almost 4 percent for the week.”

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.46 percent from 4.42 percent, with points decreasing to 0.31 from 0.44 (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.

The refinance index is up over the last five weeks as rates have declined from the August levels.

However the index is still down 60% from the levels in early May.


The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index has fallen since early May, and the 4-week average of the purchase index is now down 2% from a year ago.

by Calculated Risk on 10/15/2013 07:29:00 PM

Note: The action in the House today was a side show for political purposes only. The real action is in the Senate, and I expect an agreement to be reached soon.

From the NY Times: Conservatives and Moderates Close to Open Revolt

On the brink of a historic default, House Republicans on Tuesday put off a vote on their latest proposal to reopen the government and raise the debt limit, as a major credit agency warned that the United States was on the verge of a costly ratings downgrade.

Hard-line conservatives and more pragmatic Republicans were nearing open revolt Tuesday evening, after House Republican leadership rushed out a new bill in the afternoon, forcing a postponement of any vote on the measure. With the latest delay, chances increased that a resolution would not be reached before the Treasury exhausted its borrowing authority on Thursday.
...
“It’s very, very serious,” said Senator John McCain, Republican of Arizona. “Republicans have to understand we have lost this battle, as I predicted weeks ago, that we would not be able to win because we were demanding something that was not achievable.”

In addition to the highest unfavorable ratings in history, now tar and feathers are selling out in Republican congressional districts!¹

Wednesday:
• 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index. Look for the government shutdown to impact applications.

• DELAYED: At 8:30 AM, the Consumer Price Index for September was scheduled for release. The consensus is for a 0.2% increase in CPI in September and for core CPI to increase 0.2%.

• At 10:00 AM, the October NAHB homebuilder survey. The consensus is for a reading of 57, down from 58 in September. Any number above 50 indicates that more builders view sales conditions as good than poor.

• At 2:00 PM, the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

¹"Tar and feathers" is a joke, but not the record high unfavorable ratings for Republicans.

by Calculated Risk on 10/15/2013 04:08:00 PM

This reminds me of when I was the Trustee for our company's retirement plan. I was amazed at the reasons some people didn't participate - even with a decent match on their contributions - and I was even more amazed at how some people invested.

From an interview of Robert Shiller by Neil Irwin at the WaPo: Robert Shiller: ‘When I look around I see a lot of foolishness, and I can’t believe it’s not important economically’. Robert Shiller said:

Here’s where the efficient markets hypothesis gets you into trouble. The idea that everyone will manage their 401k plan optimally is really not right. What was discovered by some of the behavioral finance research is people are inertial. They don’t do anything. If they have to sign up for the plan, they won’t do it. If they do sign up, they'll put their money in whatever asset seems to be recommended and leave it there the rest of their lives. You would think it’s kind of obvious, that some people aren't that interested in managing their portfolios.

It was even worse than "inertia". Many people were too risk adverse and would park their money in money market funds all the time.  Others would invest in money markets, and then, if the market had done well for a few quarters, they'd move the money into the market. As soon as there was any kind of sell off, they'd be back in the money market. Amazingly these people underperformed every asset class by chasing recent performance. I think there is something to this "behavioral finance"!

by Calculated Risk on 10/15/2013 02:34:00 PM

The Freddie Mac Weekly Primary Mortgage Market Survey® will be released on Thursday (the series I usually follow), but here is a release from Zillow today: 30-Year Fixed Mortgage Rates Rise Slightly For Second Consecutive Week; Current Rate is 4.16%

The 30-year fixed mortgage rate on Zillow® Mortgage Marketplace is currently 4.16 percent, up five basis points from 4.11 percent at this time last week. The 30-year fixed mortgage rates hovered between 4.11 and 4.14 percent for the majority of the week before rising to the current rate this morning.

“Rates rose slightly last week, but remain relatively unchanged since the government shutdown began two weeks ago,” said Erin Lantz, director of mortgages at Zillow. “Despite some non-government economic data scheduled to be released next week, we expect rates to remain fairly steady until the government re-opens and releases more insightful data on the health of the economy.”

The rate for a 15-year fixed home loan is currently 3.18 percent, while the rate for a 5-1 adjustable-rate mortgage (ARM) is 2.84 percent.

This is down from mid-August when 30 year fixed rates were at 4.58% (Freddie Mac survey).  Last year rates averaged 3.38% in October 2012. 

by Calculated Risk on 10/15/2013 11:00:00 AM

In addition to Case-Shiller, CoreLogic, FHFA and LPS, I'm also watching the FNC, Zillow and several other house price indexes.

From FNC: FNC Index: Home Prices Up 0.6% in August; Signs of Subsiding Growth Momentum

The latest FNC Residential Price Index™ (RPI) shows continued growth of home prices in August as the U.S. housing recovery remains well underway. The index moved 0.6% higher from the previous the month, making August the 18th consecutive month of rising home prices. According to the FNC RPI, August home prices have climbed to the levels attained in December 2009. ...

In August, foreclosure sales nationwide accounted for 12.4% of total home sales, down slightly from July’s 12.7% and by more than 4.5 percentage points from a year ago. However, there are signs that the price momentum has likely subsided entering the fall/winter low season in homebuying. The latest September median sales-to-list price ratio edged lower to 96.2 – a 3.8% listing price markdown among closed sales, down from 97.2 in August. ...

Based on recorded sales of non-distressed properties (existing and new homes) in the 100 largest metropolitan areas, the FNC 100-MSA composite index shows that August home prices increased from the previous month at a seasonally unadjusted rate of 0.6%. In a sign of moderating month-over-month price momentum, August’s price increase is smaller than June and July. On a year-over-year basis, home prices were up a modest 5.3% from a year ago. The two narrower indices exhibit similar month-over-month price momentums but a slightly faster year-over-year price increase.
...
FNC’s RPI is the mortgage industry’s first hedonic price index built on a comprehensive database that blends public records of residential sales prices with real-time appraisals of property and neighborhood attributes. As a gauge of underlying home values, the RPI excludes sales of foreclosed homes, which are frequently sold with large price discounts, reflecting poor property conditions.
emphasis added

The 100-MSA composite was up 5.3% compared to August 2012 (slightly higher YoY change than in June and July). The FNC index turned positive on a year-over-year basis in July, 2012.

Click on graph for larger image.

This graph shows the year-over-year change for the FNC Composite 10, 20, 30 and 100 indexes. 

Even with the recent increase, the FNC composite 100 index is still off 26.2% from the peak.

I expect all of the housing price indexes to show lower year-over-year price gains toward the end of this year.