by Calculated Risk on 11/27/2013 06:08:00 PM

The Case-Shiller house price indexes for September were released Tuesday. Zillow has started forecasting Case-Shiller a month early - and I like to check the Zillow forecasts since they have been pretty close.   It looks like another very strong month ...

From Zillow: Zillow Predicts October Case-Shiller Will Show Still More Inflated Appreciation

The Case-Shiller data for September came out [Tuesday], and based on this information and the October 2013 Zillow Home Value Index (ZHVI, released Nov. 26), we predict that next month’s Case-Shiller data (October 2013) will show that both the non-seasonally adjusted (NSA) 20-City Composite Home Price Index and the NSA 10-City Composite Home Price Index increased 13.9 percent on a year-over-year basis. The seasonally adjusted (SA) month-over-month change from August to September will be 1 percent for both the 20-City Composite and the 10-City Composite Home Price Indices (SA). All forecasts are shown in the table below. Officially, the Case-Shiller Composite Home Price Indices for October will not be released until Tuesday, Dec. 31.
...
The Zillow Home Value index continues to show moderation in home value appreciation, with several of the largest metros showing month-over-month declines in October, as well as a fair amount of volatility in home value growth as the housing recovery continues. Case-Shiller indices have also shown slowdowns in monthly appreciation, but have not yet recorded monthly declines (at least not in their seasonally-adjusted monthly numbers). Even when the Case-Shiller indices do begin to show monthly depreciation in some areas, they will continue to show an inflated picture of home prices, especially when considering year-over-year growth. The Case-Shiller indices are biased toward the large, coastal metros currently seeing enormous home value gains, and they include foreclosure resales. The inclusion of foreclosure resales disproportionately boosts the index when these properties sell again for much higher prices — not just because of market improvements, but also because the sales are no longer distressed.

The following table shows the Zillow forecast for the October Case-Shiller index.

Zillow October Forecast for Case-Shiller Index
		Case Shiller Composite 10		Case Shiller Composite 20
		NSA	SA	NSA	SA
Case Shiller (year ago)	Oct 2012	158.66	156.72	146.03	144.26
Case-Shiller (last month)	Sept 2013	180.03	176.19	165.66	162.19
Zillow Forecast	YoY	13.9%	13.9%	13.9%	13.9%
	MoM	0.4%	1.0%	0.4%	1.0%
Zillow Forecasts1		180.7	178.2	166.3	164.1
Current Post Bubble Low		146.45	149.62	134.07	136.87
Date of Post Bubble Low		Mar-12	Jan-12	Mar-12	Jan-12
Above Post Bubble Low		23.4%	19.1%	24.1%	19.9%
1Estimate based on Year-over-year and Month-over-month Zillow forecasts

by Calculated Risk on 11/27/2013 03:01:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in October to 2.48% from 2.58% in September. Freddie's rate is down from 3.31% in October 2012, and this is the lowest level since March 2009. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for October next week.

Click on graph for larger image

Although this indicates progress, the "normal" serious delinquency rate is under 1%. 

The serious delinquency rate has fallen from 3.31% in October 2013 - and at that rate of improvement, the serious delinquency rate will not be below 1% until mid-to-late 2015. 

Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications.  Therefore I expect an above normal level of distressed sales for 2+ years (mostly in judicial states).

by Calculated Risk on 11/27/2013 01:01:00 PM

Note: Ethan Harris and the Merrill Lynch team has done an excellent job of forecasting the U.S. economy. Here is their outlook for 2014, from Ethan Harris at Merrill Lynch: Out of rehab. A few excerpts:

As we have been arguing for more than a year, we think 2014 is the year when the economy finally exits rehab and starts growing at a healthy 3% (4Q/4Q). In our view, the economy would have already exited rehab this year if the politicians had not hit the economy with a double dose of austerity and confidence shocks. Two keys to better growth—the housing market and the banking sector—had already shown serious signs of improvement in 2012, with solid gains in home prices and construction and a modest improvement in bank lending. ... Absent the shocks out of Washington, we believe growth this year would have been 3 to 3.5%.
...
Not only are structural headwinds fading, we expect Washington to be less shocking. While the sequester shock is not over—there is about a 0.2pp hit to GDP in 2014—the vast majority of the 2%-plus in fiscal austerity has already been absorbed into the economy. At the same time, with the election looming, we expect moderate politicians in each party to assert themselves and avoid another shutdown.
...
While some of the cyclical bounce has already happened, it is important to recognize that the US is still in the early stage of the business cycle. Business cycles don’t die of old age, they die from overexpansion and inflation. ... In our view, the auto recovery is fairly well-advanced, but there is a long way to go in other consumer durables, housing, and business investment. Even more important ... inflation seems a distant concern.
emphasis added

Harris makes several key points that I agree with (see my post from a month ago: Comment: Looking for Stronger Economic Growth in 2014). As Harris notes, the auto recovery is "well-advanced", but many other sectors of the economy (like housing) have "a long way to go". With improved balance sheets, improving housing market, the end of state and local government austerity, less Federal government austerity, 2014 should be a better year for growth.

by Calculated Risk on 11/27/2013 09:59:00 AM

Click on graph for larger image.

The final Reuters / University of Michigan consumer sentiment index for November was at 75.1, up from the October reading of 73.2, and up from the preliminary November reading of 72.0.

This was above the consensus forecast of 73.3. Sentiment has generally been improving following the recession - with plenty of ups and downs - and one big spike down when Congress threatened to "not pay the bills" in 2011. 

Unfortunately Congress shut down the government in October, and once again threatened to "not pay the bills", and this impacted sentiment last month.  The spike down wasn't as large this time, probably because many people realized the House was bluffing with a losing hand.  And now sentiment is starting to recover.

Chicago PMI: From the Chicago ISM:

November 2013:

The November Chicago Business Barometer softened to 63.0 after October’s sharp rise to a 31-month high of 65.9. November’s slight correction came amid mild declines in New Orders, Production and Order Backlogs after double digit gains in the prior month.

Despite November’s weakening, the Barometer remained well above 60 for the second month, pushing the three month moving average to the highest level since November 2011 [note: above 50 is expansion]

Employment was up for the second consecutive month, reaching the highest level since October 2011, and the first time above 60 since February 2012.

Commenting on the MNI Chicago Report, Philip Uglow, Chief Economist at MNI Indicators said, “The Barometer might be down in November, but this was another impressive month with companies reporting firm growth”.

“Having kept inventories lean for so long, a pick-up in demand has led to a sharp rise in stock building among the companies in our panel. And to handle the latest production and new orders boost, companies are hiring at the fastest pace for two years,” he added.

This was a solid report and above the consensus estimate of 60.5.

by Calculated Risk on 11/27/2013 08:34:00 AM

The DOL reports:

In the week ending November 23, the advance figure for seasonally adjusted initial claims was 316,000, a decrease of 10,000 from the previous week's revised figure of 326,000. The 4-week moving average was 331,750, a decrease of 7,500 from the previous week's revised average of 339,250.

The previous week was up from 323,000.

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 decreased to 331,750.

Some of the recent volatility in weekly claims was due to processing problems in California (now resolved).

The level of weekly claims suggests an improving labor market.

by Calculated Risk on 11/27/2013 07:02:00 AM

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

Mortgage applications decreased 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 November 22, 2013. ...

The Refinance Index increased 0.1 percent from the previous week. The seasonally adjusted Purchase Index decreased 0.2 percent from one week earlier. ...
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.48 percent from 4.46 percent, with points decreasing to 0.31 from 0.38 (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 down 62% from the levels in early May.


The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index is now down about 5% from a year ago.

by Calculated Risk on 11/26/2013 08:01:00 PM

Sort of a follow-up to my posts two weeks ago: The Return of the Cranes and The Cranes of Miami ... from the WSJ: In Downtown L.A., a Housing Revival

Six parking lots in downtown Los Angeles recently sold for $82 million. But the buyers aren't interested in the parking business: They want to build 1,500 rental apartments on the properties.
...
A dearth of apartments is fueling one of the city's largest building booms in years. There are about 14,000 apartment units in downtown Los Angeles. About 5,100 units are under construction, and more than 3,400 units were built between 2008 and 2013, according to Polaris Pacific, a real-estate sales, marketing and research firm. More than 3,000 additional rental units have been approved, with another 7,000 proposed.

The cranes are returning to downtown LA!

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

• At 8:30 AM, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 330 thousand from 323 thousand last week.

• Also at 8:30 AM, the Durable Goods Orders for October from the Census Bureau. The consensus is for a 2.0% decrease in durable goods orders.

• Also at 8:30 AM, the Chicago Fed National Activity Index for October.

• At 9:45 AM, the Chicago Purchasing Managers Index for November. The consensus is for a decrease to 60.5, down from 65.9 in October.

• At 9:55 AM, the Reuter's/University of Michigan's Consumer sentiment index (final for November). The consensus is for a reading of 73.3, up from the preliminary reading of 72.0, and up from the October reading of 73.2.

• At 10:00 AM, the Conference Board Leading Indicators for October. The consensus is for a 0.1% increase in this index.

by Calculated Risk on 11/26/2013 06:30:00 PM

The FDIC released the Quarterly Banking Profile for Q3 today.

Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported aggregate net income of $36.0 billion in the third quarter of 2013, a $1.5 billion (3.9 percent) decline from the $37.5 billion in profits that the industry reported a year earlier. This is the first time in 17 quarters — since the second quarter of 2009 — that earnings registered a year-over-year decline. The earnings decline was mainly attributable to a $4 billion increase in litigation expenses at one institution. Lower revenue from reduced mortgage activity and lower gains on asset sales also contributed to the reduction in earnings. Half of the 6,891 insured institutions reporting had year-over-year growth in earnings, while half reported declines. The proportion of banks that were unprofitable fell to 8.6 percent, from 10.7 percent a year earlier.
emphasis added

The FDIC reported the number of problem banks declined:

The number of banks on the FDIC's "Problem List" declined from 553 to 515 during the quarter. The number of "problem" banks is down more than 40 percent from the recent high of 888 at the end of the first quarter of 2011. Six FDIC-insured institutions failed in the third quarter of 2013, down from 12 in the third quarter of 2012. Thus far in 2013, there have been 23 failures, compared to 50 during the same period in 2012.

Click on graph for larger image.

The dollar value of 1-4 family residential Real Estate Owned (REOs, foreclosure houses) declined from $6.98 billion in Q2 2013 to $6.79 billion in Q3. This is the lowest level of REOs since Q4 2007. Even in good times, the FDIC insured institutions have about $2.5 billion in residential REO.

This graph shows the dollar value of Residential REO for FDIC insured institutions. Note: The FDIC reports the dollar value and not the total number of REOs.

by Calculated Risk on 11/26/2013 03:37:00 PM

From the FHFA: FHFA Announces Fannie Mae and Freddie Mac Conforming Loan Limits for 2014

The Federal Housing Finance Agency (FHFA) today announced that the 2014 maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac will remain at $417,000 for one-unit properties in most areas of the country.

The Housing and Economic Recovery Act of 2008 (HERA) establishes the maximum conforming loan limit that Fannie Mae and Freddie Mac are permitted to set for mortgage acquisitions. HERA also requires annual adjustments to these limits to reflect changes in the national average home price.
...
Link to maximum conforming loan limits for 2014
...
In determining the 2014 HERA loan limits in high-cost areas, FHFA continued its policy of not permitting declines relative to prior HERA limits. While HERA did not explicitly prohibit declines in high-cost area loan limits, that approach is consistent with the statutory procedure for responding to changes in prices on a national basis. Subject to this policy, the 2014 HERA limits reflect the higher of the limits directly calculated for 2014 and HERA loan limits determined for years 2009 through 2013.

The 2014 loan limits are higher than 2013 HERA limits in several counties. Those increases were, in some cases, a function of rising median home values.

The conforming loan limit was increased in 18 counties. Seven counties saw large increases from $417,000 in 2013 to $625,000 in 2014, including Garfield, CO, and some counties in New York, Virginia and Idaho.

Note: For comparison, here are the 2013 conforming loan limits.

by Calculated Risk on 11/26/2013 01:32:00 PM

It appears house price increases have slowed recently based on agent reports and asking prices (a combination of a little more inventory and higher mortgage rates), but this slowdown in price increases is not showing up yet in the Case-Shiller index because of the reporting lag and because of the three month average (the September report was an average of July, August and September prices). I expect to see smaller year-over-year price increases going forward and some significant deceleration towards in early 2014.

Zillow's chief economist Stan Humphries said today: “Zillow’s own data, which excludes REO re-sales, shows the same markets that dominate the Case-Shiller indices – particularly some of the California markets – to be cooling. This suggests that Case-Shiller’s inclusion of REO re-sales is heavily skewing overall appreciation in these markets."

I also think many of us expect house price increase to slow.

Note: My image server (Google) was down this morning. Here are some graphs:

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 22.3% from the peak, and up 0.9% in September (SA). The Composite 10 is up 17.8% from the post bubble low set in Jan 2012 (SA).

The Composite 20 index is off 21.5% from the peak, and up 0.9% (SA) in September. The Composite 20 is up 18.5% from the post-bubble low set in Jan 2012 (SA).

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

The Composite 10 SA is up 13.2% compared to September 2012.

The Composite 20 SA is up 13.2% compared to September 2012. 

Prices increased (SA) in 20 of the 20 Case-Shiller cities in August seasonally adjusted.  Prices in Las Vegas are off 46.9% from the peak, and prices in Denver and Dallas are at new highs.

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 41% above January 2000. 

These are nominal prices, and as I noted above real prices (adjusted for inflation) are up about 38% since January 2000 - so the increase in Phoenix from January 2000 until now is about the change in inflation.

Two cities - Denver (up 44% since Jan 2000) and Dallas (up 30% since Jan 2000) - are at new highs (no other Case-Shiller Comp 20 city is very close).    Denver is up slightly more than inflation over that period, and Dallas slightly less.  Detroit prices are still below the January 2000 level.