by Calculated Risk on 2/12/2014 12:40:00 PM

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

FNC released their December index data today. FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 0.3% from November to December (Composite 100 index, not seasonally adjusted). The other RPIs (10-MSA, 20-MSA, 30-MSA) increased between 0.4% and 0.5% in December. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).

Since these indexes are NSA, this is a strong month-to-month increase.

The year-over-year change continued to increase in December, with the 100-MSA composite up 8.7% compared to December 2012.

Click on graph for larger image.

This graph shows the year-over-year change based on the FNC index (four composites) through December 2012. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

There is still no clear evidence of a slowdown in price increases yet.

The December Case-Shiller index will be released on Tuesday, February 25th.

by Calculated Risk on 2/12/2014 09:41:00 AM

A month ago I mentioned that California is experiencing another drought year. Since California is the largest agricultural state, the ongoing drought could have an impact on food prices - and on the economy.

From the WSJ: Battle Over California Drought Solution

California's drought is becoming a hot issue on Capitol Hill, where bills from Senate Democrats and House Republicans offer rival solutions on how to best aid water-starved farmers.

The Golden State has suffered through a three-year drought that is forcing farmers to leave fallow hundreds of thousands of acres. Other Western states have experienced drought conditions for much of the past decade, prompting water managers across the region to embark on billions of dollars in projects to safeguard and stockpile supplies. Because California boasts a bigger agricultural sector than any other state, the drought could have an outsize economic impact nationally, raising produce prices. A weekend storm dumped rain and snow on Northern California, but officials said that put only a small dent in the drought.

Lawmakers can't make it rain!

Here are a few resources to track the drought. These tables show the snowpack in the North, Central and South Sierra. Currently the snowpack is about 28% of normal for this date.

And here are some plots comparing the current and previous years to the average, a very dry year ('76-'77) and a wet year ('82-'83).

For John Muir Trail hikers, I recommend using the Upper Tyndall Creek sensor to track the snow conditions. This is the third dry year in a row along the JMT.

by Calculated Risk on 2/12/2014 07:02:00 AM

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

Mortgage applications decreased 2.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending February 7, 2014. ...

The Refinance Index decreased 0.2 percent from the previous week. The seasonally adjusted Purchase Index decreased 5 percent from one week earlier....
...
The average contract rate declined for all loan products in the survey. Contract rates were at their lowest level since November 2013, except for the 5/1 ARM, which was at the lowest level since December 2013.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.45 percent from 4.47 percent, with points increasing to 0.34 from 0.25 (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 67% from the levels in May 2013.

With the mortgage rate increases, refinance activity will be significantly lower in 2014 than in 2013.


The second graph shows the MBA mortgage purchase index.  

The 4-week average of the purchase index is now down about 15% from a year ago.

The purchase index is probably understating purchase activity because small lenders tend to focus on purchases, and those small lenders are underrepresented in the purchase index - but this is still very weak.

by Calculated Risk on 2/11/2014 06:55:00 PM

A great review of Fed Chair Janet Yellen's testimony today from Tim Duy: Yellen's Debut as Chair. A few excerpts:

Janet Yellen made her first public comments as Federal Reserve Chair in a grueling, nearly day-long, testimony to the House Financial Services Committee. Her testimony made clear that we should expect a high degree of policy continuity. Indeed, she said so explicitly. The taper is still on, but so too is the expectation of near-zero interest rates into 2015. Data will need to get a lot more interesting in one direction or the other for the Fed to alter from its current path.
...
Her disappointment in the [employment] numbers raises the possibility - albeit not my central case - that another weak number in the February report could prompt a pause. My baseline case, however, is that even if it was weak, it would not effect the March outcome but instead, if repeated again, the outcome of the subsequent meeting. Remember, the Fed wants to end asset purchases. As long as they believe forward guidance is working, they will hesitate to pause the taper.
...
Yellen reiterates the current Evans rule framework for forward guidance, giving no indication that the thresholds are likely to be changed. Jon Hilsenrath at the Wall Street Journal interprets this to mean that when the 6.5% unemployment rate threshold is breached, the Fed will simply switch to qualitative forward guidance. I tend to agree.

Bottom Line: Circumstances have not change sufficiently to prompt the Federal Reserve deviate from the current path of policy.

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

• At 2:00 PM, the Monthly Treasury Budget Statement for January. The CBO estimates that the Treasury ran a deficit of $10 billion in January.

by Calculated Risk on 2/11/2014 04:54:00 PM

Another "bubble" area that has seen rapid price appreciation over the last two years. Now sales are declining and inventory is increasing.

The Arizona Regional Multiple Listing Service reported Statistics for January

• Total Sales are down 17.1% year-over-year.

• Distressed sales are down 59.6% year-over-year.

• Active inventory is up 28.9% year-over-year.

Inventory has clearly bottomed in Phoenix (A major theme for housing last year). And fewer distressed sales - probably less investor buying - and more inventory means price increases will slow.

by Calculated Risk on 2/11/2014 02:38:00 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 Rate Rises Slightly

Mortgage rates for 30-year fixed mortgages rose this week, with the current rate borrowers were quoted on Zillow Mortgage Marketplace 4.14 percent, up from 4.09 percent at this same time last week.

“Rates were essentially unchanged last week despite a weaker than expected jobs report,” said Erin Lantz, director of mortgages at Zillow. “Although this week marks Janet Yellen’s first congressional testimony as the new Federal Reserve Chair, we expect rates will remain fairly flat.”

Additionally, the 15-year fixed mortgage rate this morning was 3.13 percent and for 5/1 ARMs, the rate was 2.80 percent.

This is down from last August when 30 year fixed rates were at 4.58% (Freddie Mac survey), and mortgage rates have been mostly moving sideways (or down a little) since jumping last June and July after Bernanke mentioned that the FOMC could start tapering later in 2013). Last year rates averaged 3.53% in February 2013. 

by Calculated Risk on 2/11/2014 10:46:00 AM

From the BLS: Job Openings and Labor Turnover Summary

There were 4.0 million job openings on the last business day of December, little changed from November, the U.S. Bureau of Labor Statistics reported today. ...
...
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. ... The number of quits (not seasonally adjusted) increased over the 12 months ending in December for total nonfarm and total private and was little changed 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 December, the most recent employment report was for January.

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 decreased slightly in December to 3.990 million from 4.033 million in November.   

The number of job openings (yellow) is up 10.5% year-over-year compared to December 2012.

Quits increased in December and are up about 12% year-over-year. 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 - and the data is noisy month-to-month, but the general trend suggests a gradually improving labor market.  It is a good sign that job openings are close to 4.0 million and are at 2005 levels - and that quits (mostly voluntary separations) are up sharply year-over-year.

by Calculated Risk on 2/11/2014 09:12:00 AM

Federal Reserve Chair Janet Yellen testimony "Semiannual Monetary Policy Report to the Congress" Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C. (starts at 10 AM ET):

Turning to monetary policy, let me emphasize that I expect a great deal of continuity in the FOMC's approach to monetary policy. I served on the Committee as we formulated our current policy strategy and I strongly support that strategy, which is designed to fulfill the Federal Reserve's statutory mandate of maximum employment and price stability.

Prior to the financial crisis, the FOMC carried out monetary policy by adjusting its target for the federal funds rate. With that rate near zero since late 2008, we have relied on two less-traditional tools--asset purchases and forward guidance--to help the economy move toward maximum employment and price stability. Both tools put downward pressure on longer-term interest rates and support asset prices. In turn, these more accommodative financial conditions support consumer spending, business investment, and housing construction, adding impetus to the recovery.

Our current program of asset purchases began in September 2012 amid signs that the recovery was weakening and progress in the labor market had slowed. The Committee said that it would continue the program until there was a substantial improvement in the outlook for the labor market in a context of price stability. In mid-2013, the Committee indicated that if progress toward its objectives continued as expected, a moderation in the monthly pace of purchases would likely become appropriate later in the year. In December, the Committee judged that the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions warranted a modest reduction in the pace of purchases, from $45 billion to $40 billion per month of longer-term Treasury securities and from $40 billion to $35 billion per month of agency mortgage-backed securities. At its January meeting, the Committee decided to make additional reductions of the same magnitude. If incoming information broadly supports the Committee's expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. That said, purchases are not on a preset course, and the Committee's decisions about their pace will remain contingent on its outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

The Committee has emphasized that a highly accommodative policy will remain appropriate for a considerable time after asset purchases end. In addition, the Committee has said since December 2012 that it expects the current low target range for the federal funds rate to be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation is projected to be no more than a half percentage point above our 2 percent longer-run goal, and longer-term inflation expectations remain well anchored. Crossing one of these thresholds will not automatically prompt an increase in the federal funds rate, but will instead indicate only that it had become appropriate for the Committee to consider whether the broader economic outlook would justify such an increase. In December of last year and again this January, the Committee said that its current expectation--based on its assessment of a broad range of measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments--is that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the 2 percent goal. I am committed to achieving both parts of our dual mandate: helping the economy return to full employment and returning inflation to 2 percent while ensuring that it does not run persistently above or below that level.
emphasis added

Here is the C-Span Link (starts at 10:00 AM ET)

Here is the Bloomberg TV link.

by Calculated Risk on 2/11/2014 08:44:00 AM

From the National Federation of Independent Business (NFIB): Small Business Confidence Edges Up, Ever so Slightly

Small business optimism started the year slightly up from December at 94.1 but well below the pre-recession average of 100, according to the National Federation of Independent Business’ (NFIB’s) latest index. On the positive front, owners did find a reason to be more positive about their own sales (a huge 7 point jump in positive expectations) and plan more hiring, with the strongest job creation plans since 2007.
...
NFIB owners increased employment by an average of 0.12 workers per firm in January (seasonally adjusted), half the December reading, but a solid number.

Click on graph for larger image.

This graph shows the small business optimism index since 1986. The index increased to 94.1 in January from 93.9 in December - and is just below the post-recession high.  

Also this is the highest level for hiring plans since 2007. A small step in the right direction.

by Calculated Risk on 2/10/2014 08:39:00 PM

An update on Congress paying the bills from the WSJ: GOP Leaders in New Push to Reach Debt Deal

House Republican leaders tried Monday to build support for raising the federal debt limit by linking it to a reversal of planned cuts in some military pensions ...

"It's reasonable to attach that provision to the debt ceiling," Rep. Charlie Dent (R., Pa.) said of the military pension provision. "If the votes aren't there for that, then at some point we'll have to vote on a clean bill."

Congress will pay the bills. Everything else is political theater (like the dumb questions for Fed Chair Yellen during her testimony tomorrow). Yawn.

Tuesday:
• At 7:30 AM ET, the NFIB Small Business Optimism Index for January.

• At 10:00 AM, the Job Openings and Labor Turnover Survey for December from the BLS. Jobs openings increased in November to 4.001 million from 3.931 million in October. The number of job openings were up 5.6% year-over-year compared to November 2012 and this was the first time job openings had been above 4 million since 2008. Quits increased in November and were up about 13% year-over-year. These are voluntary separations, so this is a positive indicator.

• Also at 10:00 AM, Monthly Wholesale Trade: Sales and Inventories for December. The consensus is for a 0.5% increase in inventories.

• Also at 10:00 AM, Testimony, Fed Chair Janet L. Yellen, Semiannual Monetary Policy Report to the Congress, Before the House Financial Services Committee, Washington, D.C.