RSS Feed by Calculated Risk on 3/17/2014 04:29:00 PM
Monday, March 17, 2014
Research: Tight Credit significantly impacting Purchase Mortgage Lending
The researchers compared currently lending to lending standards in 2001. They found that if lending standards were similar to 2001 (prior to the loose bubble lending), then there would have been up to 1.2 million more purchase mortgage in 2012.
From Laurie Goodman, Jun Zhu, and Taz George: Where Have All the Loans Gone? The Impact of Credit Availability on Mortgage Volume
Credit availability for mortgage purchases has been very tight over the post-crisis period. In fact, over the past decade, the number of mortgages originated to purchase a home declined dramatically. In this commentary, we examine this decline and explain how limited access to credit has contributed to the drop. We estimate the number of “missing loans” that would have been made if credit availability were at normal levels—we find this number could be as high as 1.2 million units annually....
Based on the upper bound calculation, 1.22 million fewer purchase mortgages were made in 2012 than would have been the case had credit availability remained at 2001 levels. ... This is, however, likely to overstate the impact of tighter credit. We calculate a lower bound estimate, using a similar methodology, to be 273,000 missing 2012 first lien purchase loans. ... The truth is somewhere between these estimates, but likely closer to the upper bound because many prospective borrowers with FICO scores well above 660 are affected by the tight credit box and credit overlays.
Weekly Update: Housing Tracker Existing Home Inventory up 5.5% year-over-year on March 17th
by Calculated Risk on 3/17/2014 12:44:00 PM
Here is another weekly update on housing inventory ...
There is a clear seasonal pattern for inventory, with the low point for inventory in late December or early January, and then usually peaking in mid-to-late summer.
The Realtor (NAR) data is monthly and released with a lag (the most recent data was for January - February data will be released this week). However Ben at Housing Tracker (Department of Numbers) has provided me some weekly inventory data for the last several years.
Click on graph for larger image.
This graph shows the Housing Tracker reported weekly inventory for the 54 metro areas for 2010, 2011, 2012, 2013 and 2014.
In 2011 and 2012, inventory only increased slightly early in the year and then declined significantly through the end of each year.
Inventory in 2014 is now 5.5% above the same week in 2013 (red is 2014, blue is 2013).
Inventory is still very low, but this increase in inventory should slow house price increases.
Note: One of the key questions for 2014 will be: How much will inventory increase? My guess is inventory will be up 10% to 15% year-over-year by the end of 2014 (inventory would still be below normal).
NAHB: Builder Confidence increased slightly in March to 47
by Calculated Risk on 3/17/2014 10:00:00 AM
The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 47 in March, up from 46 in February. Any number below 50 indicates that more builders view sales conditions as poor than good.
From the NAHB: Builder Confidence Treads Water in March
Builder confidence in the market for newly-built, single-family homes rose one point to 47 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.
...
“A number of factors are raising builder concerns over meeting demand for the spring buying season,” said NAHB Chief Economist David Crowe. “These include a shortage of buildable lots and skilled workers, rising materials prices and an extremely low inventory of new homes for sale.”
Derived from a monthly survey that NAHB has been conducting for 30 years, the NAHB/Wells Fargo Housing Market Index gauges builder perceptions of current single-family home sales and sales expectations for the next six months as “good,” “fair” or “poor.” The survey also asks builders to rate traffic of prospective buyers as “high to very high,” “average” or “low to very low.” Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.
The index’s components were mixed in March. The component gauging current sales conditions rose one point to 52 and the component measuring buyer traffic increased two points to 33. The component gauging sales expectations in the next six months fell one point to 53.
The three-month moving averages for regional HMI scores all fell in March. The Northeast dropped three points to 35, the Midwest fell three points to 53, the South posted a four-point decline to 49 and the West registered a two-point drop to 61.
emphasis added
Click on graph for larger image.This graph show the NAHB index since Jan 1985.
This was the second consecutive reading below 50.
Fed: Industrial Production increased 0.6% in February
by Calculated Risk on 3/17/2014 09:15:00 AM
From the Fed: Industrial production and Capacity Utilization
Industrial production increased 0.6 percent in February after having declined 0.2 percent in January. In February, manufacturing output rose 0.8 percent and nearly reversed its decline of 0.9 percent in January, which resulted, in part, from extreme weather. The gain in factory production in February was the largest since last August. The output of utilities edged down 0.2 percent following a jump of 3.8 percent in January, and the production at mines moved up 0.3 percent. At 101.6 percent of its 2007 average, total industrial production in February was 2.8 percent above its level of a year earlier. The capacity utilization rate for total industry increased in February to 78.8 percent, a rate that is 1.3 percentage points below its long-run (1972–2013) average.
emphasis added
Click on graph for larger image.This graph shows Capacity Utilization. This series is up 11.6 percentage points from the record low set in June 2009 (the series starts in 1967).
Capacity utilization at 78.8% is still 1.3 percentage points below its average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007.
Note: y-axis doesn't start at zero to better show the change.
The second graph shows industrial production since 1967.Industrial production increased 0.6% in February to 101.6. This is 21% above the recession low, and slightly above the pre-recession peak.
The monthly change for both Industrial Production and Capacity Utilization were above expectations.
NY Fed: Empire State Manufacturing Activity indicates "business conditions improved" in March
by Calculated Risk on 3/17/2014 08:37:00 AM
From the NY Fed: Empire State Manufacturing Survey
The March 2014 Empire State Manufacturing Survey indicates that business conditions continued to improve for New York manufacturers, though activity grew slowly. At 5.6, the general business conditions index was little changed from last month. [up from 4.5] ...This is the first of the regional surveys for March. The general business conditions index was close to the consensus forecast of a reading of 6.5, and indicates slightly faster expansion in March than in February.
The new orders index climbed three points to 3.1, pointing to a slight increase in orders. ...
Labor market conditions continued to improve. The employment index fell five points but, at 5.9, indicated a small increase in employment levels. The average workweek index, holding steady at 4.7, pointed to a small increase in hours worked.
emphasis added
Sunday, March 16, 2014
Monday: Industrial Production, Empire State Mfg Survey, Builder Confidence
by Calculated Risk on 3/16/2014 08:05:00 PM
Monday:
• At 8:30 AM ET, the NY Fed Empire State Manufacturing Survey for March. The consensus is for a reading of 6.5, up from 4.5 in February (above zero is expansion).
• At 9:15 AM, the Fed will release Industrial Production and Capacity Utilization for February. The consensus is for a 0.3% increase in Industrial Production, and for Capacity Utilization to increase to 78.6%.
• At 10:00 AM, the March NAHB homebuilder survey. The consensus is for a reading of 50, up from 46 in February. Any number above 50 indicates that more builders view sales conditions as good than poor.
Weekend:
• Schedule for Week of March 16th
• FOMC Preview: More Tapering, Change to Guidance
From CNBC: Pre-Market Data and Bloomberg futures: the S&P futures are down 3 and DOW futures are down 33 (fair value).
Oil prices are down with WTI futures at $99.11 per barrel and Brent at $108.21 per barrel.
Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are around $3.50 per gallon (up sharply over the last month, but still down from the same week a year ago). If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.
| Orange County Historical Gas Price Charts Provided by GasBuddy.com |
FOMC Preview: More Tapering, Change to Guidance
by Calculated Risk on 3/16/2014 10:26:00 AM
Fed Chair Janet Yellen will chair her first FOMC meeting this week on Tuesday and Wednesday, and hold her first post-FOMC press conference following the meeting. It appears the FOMC will reduce monthly asset purchases by another $10 billion per month, from $65 billion to $55 billion. The weaker than expected recent data will probably not derail another round of tapering, and the focus this month will be on the change to the forward guidance.
From Goldman Sachs economist Sven Jari Stehn: March FOMC Preview: All about Guidance
[W]ill the Committee’s forward guidance change? The January minutes revealed disagreement within the Committee about the future direction of its forward guidance, with “some” favoring additional quantitative guidance and “others” preferring a switch to qualitative form of guidance. Since then, however, both President Dudley and President Evans have argued in favor of qualitative guidance and we expect the Committee to move into this direction. We see two options for doing so.It will also be interesting to see if there are any changes to the FOMC projections. I expect any change to be minor.
The first would be to split the current guidance paragraph into two: one that reaffirms policy intentions above 6.5% and one that describes policy intentions below 6.5% in qualitative terms. For example, the Committee could state: “although the unemployment rate is approaching 6-1/2 percent, the Committee judges that employment remains well below its maximum sustainable level. Once the unemployment rate has declined below 6-1/2 percent, the Committee therefore intends to maintain the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent as long as employment or inflation remain well below their longer-run goals.” Once the unemployment rate has fallen below 6.5% they could simply delete the “6.5%” paragraph and be left with a qualitative description of their intentions. This approach would follow the Bank of England’s approach which simply added a paragraph to their guidance statement that describes policy intentions after the threshold (in their case 7%) has been reached, but kept the original threshold statement.
The second option would be for the Committee to switch entirely to qualitative guidance and drop the 6.5% threshold at next week’s meeting. For example, Fed officials could simply state that “the Committee intends to maintain the current exceptionally low target range for the federal funds rate of 0 to 1/4 percent as long as employment or inflation remain well below their longer-run goals.” The FOMC could then follow the Bank of England in providing additional color on the Committee’s view on how far away the economy currently is from full employment and price stability. While the Bank of England published a separate document providing those details, Fed officials could include this information in Yellen’s prepared remarks at the start of the press conference.
Either option is possible in our view.
For review, here are the previous projections. Several FOMC members have blamed the recent weak economic data on the severe winter weather, so any downward revision to the 2014 GDP projections will probably be small.
| GDP projections of Federal Reserve Governors and Reserve Bank presidents | ||||
|---|---|---|---|---|
| Change in Real GDP1 | 2013 | 2014 | 2015 | 2016 |
| Dec 2013 Meeting Projections | 2.2 to 2.3 | 2.8 to 3.2 | 3.0 to 3.4 | 2.5 to 3.2 |
| Sept 2013 Meeting Projections | 2.0 to 2.3 | 2.9 to 3.1 | 3.0 to 3.5 | 2.5 to 3.3 |
The unemployment rate was at 6.7% in February.
| Unemployment projections of Federal Reserve Governors and Reserve Bank presidents | ||||
|---|---|---|---|---|
| Unemployment Rate2 | 2013 | 2014 | 2015 | 2016 |
| Dec 2013 Meeting Projections | 7.0 to 7.1 | 6.3 to 6.6 | 5.8 to 6.1 | 5.3 to 5.8 |
| Sept 2013 Meeting Projections | 7.1 to 7.3 | 6.4 to 6.8 | 5.9 to 6.2 | 5.4 to 5.9 |
As of January, PCE inflation was up 1.2% from January 2012, and core inflation was up 1.1%. The FOMC expects inflation to increase in 2014, but remain below their 2% target (Note: the FOMC target is symmetrical around 2%, so this is about the same miss as 2.9% inflation).
| Inflation projections of Federal Reserve Governors and Reserve Bank presidents | ||||
|---|---|---|---|---|
| PCE Inflation1 | 2013 | 2014 | 2015 | 2016 |
| Dec 2013 Meeting Projections | 0.9 to 1.0 | 1.4 to 1.6 | 1.5 to 2.0 | 1.7 to 2.0 |
| Sept 2013 Meeting Projections | 1.1 to 1.2 | 1.3 to 1.8 | 1.6 to 2.0 | 1.7 to 2.0 |
Here are the FOMC's recent core inflation projections:
| Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents | ||||
|---|---|---|---|---|
| Core Inflation1 | 2013 | 2014 | 2015 | 2016 |
| Dec 2013 Meeting Projections | 1.1 to 1.2 | 1.4 to 1.6 | 1.6 to 2.0 | 1.8 to 2.0 |
| Sept 2013 Meeting Projections | 1.2 to 1.3 | 1.5 to 1.7 | 1.7 to 2.0 | 1.9 to 2.0 |
Saturday, March 15, 2014
Schedule for Week of March 16th
by Calculated Risk on 3/15/2014 01:11:00 PM
The key reports this week are February housing starts on Tuesday, and February existing home sales on Thursday.
For manufacturing, the February Industrial Production and Capacity Utilization report, and the March NY Fed (Empire State) and Philly Fed surveys, will be released this week.
For prices, CPI will be released on Tuesday.
The FOMC meets on Tuesday and Wednesday, and the FOMC is expected to taper QE3 asset purchases another $10 billion per month at this meeting.
8:30 AM ET: NY Fed Empire Manufacturing Survey for March. The consensus is for a reading of 6.5, up from 4.5 in February (above zero is expansion).
9:15 AM: The Fed will release Industrial Production and Capacity Utilization for February.This graph shows industrial production since 1967.
The consensus is for a 0.3% increase in Industrial Production, and for Capacity Utilization to increase to 78.6%.
10:00 AM: The March NAHB homebuilder survey. The consensus is for a reading of 50, up from 46 in February. Any number above 50 indicates that more builders view sales conditions as good than poor.
8:30 AM: Consumer Price Index for February. The consensus is for a 0.1% increase in CPI in January and for core CPI to increase 0.1%.
8:30 AM: Housing Starts for February. Total housing starts were at 880 thousand (SAAR) in January. Single family starts were at 573 thousand SAAR in January.
The consensus is for total housing starts to increase to 915 thousand (SAAR) in February.
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.
During the day: The AIA's Architecture Billings Index for February (a leading indicator for commercial real estate).
2:00 PM: FOMC Meeting Announcement. The FOMC is expected to reduce monthly QE3 asset purchases from $65 billion per month to $55 billion per month at this meeting.
2:00 PM: FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.
2:30 PM: Fed Chair Janet Yellen holds a press briefing following the FOMC announcement.
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 325 thousand from 315 thousand.
10:00 AM: the Philly Fed manufacturing survey for March. The consensus is for a reading of 4.0, up from -6.3 last month (above zero indicates expansion).
10:00 AM: Existing Home Sales for February from the National Association of Realtors (NAR). The consensus is for sales of 4.64 million on seasonally adjusted annual rate (SAAR) basis. Sales in January were at a 4.62 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 4.60 million SAAR.
As always, a key will be inventory of homes for sale.
No economic releases scheduled.
Unofficial Problem Bank list declines to 559 Institutions
by Calculated Risk on 3/15/2014 08:24:00 AM
This is an unofficial list of Problem Banks compiled only from public sources.
Here is the unofficial problem bank list for March 14, 2014.
Changes and comments from surferdude808:
For the week, there were five bank removals with assets of $2.1 billion from the Unofficial Problem Bank List. After removal, the list includes 559 institutions with assets of $178.0 billion. A year ago, the list held 801 institutions with assets of $295.6 billion.
Omnibank, National Association, Houston, TX ($285 million) found a merger partner in order to depart the list. Actions were terminated against FSGBank, National Association, Chattanooga, TN ($977 million Ticker: FSGI); Northside Community Bank, Gurnee, IL ($290 million); Landmark Bank, National Association, Fort Lauderdale, FL ($269 million); and Community Resource Bank, Northfield, MN ($237 million).
Next Friday, we anticipate the OCC will provide an update on its enforcement action activity.
Friday, March 14, 2014
Kolko: Where Do Housing “Leading Indicators” Lead Us?
by Calculated Risk on 3/14/2014 07:31:00 PM
CR Note: This is from Trulia chief economist Jed Kolko:
How well do leading indicators predict housing activity? In theory they should if housing construction and home purchases follow a logical sequence. When homes are sold, contracts are signed (as measured by NAR’s pending home sales index) before sales close (NAR existing home sales); also, many buyers apply for mortgages (MBA purchase applications index) before a sale closes. Also, when new homes are built, they get permits (Census new home permits) before construction begins (Census new home starts); and roughly two-thirds of new home sales happen when homes are under construction or completed, rather than before they’re started.
But lots of factors can erode the link between leading indicators and the activities they foreshadow. Some homes inevitably fail to follow the standard paths: some sales under contract may fail to close, some permitted units might not get built, and – especially now – homes can be purchased with cash and therefore skip the mortgage-application step altogether. Unanticipated events can break the link, too: bad weather or a sudden crisis that hurts confidence could delay construction on already-permitted units.
Simple correlations and time-series regressions show empirically how well leading indicators actually predict key housing measures. Because the relationships between indicators can change over time, it’s helpful to focus on the most recent years of data. (The real test is whether leading indicators predict month-over-month changes, not year-over-year changes, since eleven months of a year-over-year change are already known before each monthly release of a year-over-year number.)
Based on national housing measures from 2008 to the present, the leading-indicator crystal ball is generally pretty cloudy, though better for existing home sales than for new home starts or sales.
1. Existing home sales
Existing home sales , which are closings, tend to follow pending home sales by one or two months. Pending sales turn out to be a reasonably good leading indicator of existing sales. The correlation between the month-over-month change (m/m) in existing sales and the m/m change in pending sales from one month earlier is 0.45; the correlation with the pending sales from two months earlier is also 0.45. The correlation between existing sales m/m and the average of the one and two month lags of pending sales m/m is 0.70.
How strong is this relationship? That’s weaker than, say, the very tight relationship between the change in the 30-year fixed rate and the same-month change in the MBA refinance index (correlation = -0.84). But the pending-existing sales relationship is stronger than any of the construction-related measures, as we’ll see next.
Putting that into a simple time-series regression shows that the best predictor of the existing sales m/m change is the simple average of pending sales m/m changes from one and two months earlier. Including the m/m change in the MBA purchase-application index from one and two months earlier improves the prediction of existing sales only minimally. The m/m changes in pending home sales for December and January suggest a 3% m/m drop in existing home sales in February.
2. New home starts
Building permits are a weaker predictor of new-home starts than pending sales are of existing home sales. The correlation between the m/m change in starts and the previous month’s m/m change in permits is 0.45, but permits from more than one month back bear little relation to starts. Rather, the m/m change in starts is partly correlated with the same month’s change in permits. That means that changes in new home starts tend to run, on average, half a month behind changes in new home permits. Since permits data are released in the same monthly Census report as new home starts, the value of permits as a leading indicator is limited.
The historical data suggests that the best guess of this month’s m/m change in starts is 0.6 times last month’s m/m change in permits. Permits fell m/m in January by 5%, pointing to a 3% drop in starts in February. But the relationship isn’t very tight, so even that best guess will often be way off.
3. New home sales
It’s even harder to predict new home sales based on other indicators. The m/m change in new home sales is most strongly correlated with the same month change in new single-family permits . Since the Census releases new home sales data one week after the release of starts and permits data for the same month, this month’s change in permits gives a few-day-ahead hint at the same month’s change in new home sales, but only because of the reporting lag.
Overall, the leading indicators don’t get us that far. Changes in pending home sales predict changes in existing home sales reasonably well, when the changes from one and two months earlier are averaged. But lagged pending home sales probably don’t beat out aggregated data from local realtor/MLS reports (regularly posted here on Calculated Risk) as an early look at existing home sales. On the construction side, building permits are halfway between a leading indicator and a concurrent indicator of starts, and neither is a good leading indicator of changes in new home sales. The modest value of leading indicators means that every month there’s plenty of room for housing-data surprises.
