by Calculated Risk on 7/10/2014 08:40:00 PM

From HotelNewsNow.com: STR: US hotel results for week ending 5 July

In year-over-year measurements, the industry’s occupancy rate increased 4.4 percent to 66.0 percent. Average daily rate increased 4.5 percent to finish the week at US$112.40. Revenue per available room for the week was up 9.0 percent to finish at US$74.14.
emphasis added

Note: ADR: Average Daily Rate, RevPAR: Revenue per Available Room.

The 4-week average of the occupancy rate is solidly above the median for 2000-2007, and is at the same level as in 2000. 

The following graph shows the seasonal pattern for the hotel occupancy rate for the last 15 years using the four week average.

Click on graph for larger image.

The red line is for 2014 and black is for 2009 - the worst year since the Great Depression for hotels.  Note: 2001 was briefly worse than 2009 in September.


Right now it looks like 2014 will be the best year since 2000 for hotels.   A very strong year ...

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 7/10/2014 04:48:00 PM

A speech from Fed Vice Chairman Stanley Fischer Financial Sector Reform: How Far Are We? Here is his conclusion:

The United States is making significant progress in strengthening the financial system and reducing the probability of future financial crises. In particular

• By raising capital and liquidity ratios for SIFIs, and through the active use of stress tests, regulators and supervisors have strengthened bank holding companies and thus reduced the probability of future bank failures.
• Work on the use of the resolution mechanisms set out in the Dodd-Frank Act, based on the principle of a single point of entry, holds out the promise of making it possible to resolve banks in difficulty at no direct cost to the taxpayer--and in any event at a lower cost than was hitherto possible. However, work in this area is less advanced than the work on raising capital and liquidity ratios.
• Although the BCBS and the FSB reached impressively rapid agreement on needed changes in regulation and supervision, progress in agreeing on the resolution of G-SIFIs and some other aspects of international coordination has been slow.
• Regulators almost everywhere need to do more research on the effectiveness of microprudential and other tools that could be used to deal with macroprudential problems.
• It will be important to ensure that coordination among different regulators of the financial system is effective and, in particular, will be effective in the event of a crisis.
• A great deal of progress has been made in dealing with the TBTF problem. While we must continue to work toward ending TBTF or the need for government financial intervention in crises, we should never allow ourselves the complacency to believe that we have put an end to TBTF.
• We should recognize that despite some imperfections, the Dodd-Frank Act is a major achievement.
• At the same time, we need always be aware that the next crisis--and there will be one--will not be identical to the last one, and that we need to be vigilant in both trying to foresee it and seeking to prevent it.

And if, despite all our efforts, a crisis happens, we need to be willing and prepared to deal with it.
emphasis added

by Calculated Risk on 7/10/2014 01:49:00 PM

Several years ago I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales).  For a long time, not much changed. But over the last 2+ years we've seen some significant changes with a dramatic shift from foreclosures (REO: lender Real Estate Owned) to short sales, and the percentage of total distressed sales declining sharply.

This data suggests healing in the Sacramento market and other distressed markets are showing similar improvement.  Note: The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

In June 2014, 13.3% of all resales (single family homes) were distressed sales. This was down from 14.7% last month, and down from 26.5% in June 2013. This is the post-bubble low.

The percentage of REOs was at 7.2%, and the percentage of short sales was 6.1%.

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been a sharp increase in conventional sales over the last 2+ years (blue). 

Active Listing Inventory for single family homes increased 91.0% year-over-year in June. 

Cash buyers accounted for 19.8% of all sales, down from 29.9% in June 2013, and down from 20.5% last month (frequently investors).  This has been trending down, and it appears investors are becoming much less of a factor in Sacramento.

Total sales were down 3.7% from June 2013, but conventional equity sales were up 13.5% compared to the same month last year. This is exactly what we expect to see in an improving distressed market - flat or even declining overall sales as distressed sales decline, and conventional sales increasing.

Summary: Distressed sales down sharply (at post bubble low), Cash buyers down significantly, normal equity sales up 13.5% year-over-year, inventory up significantly (price increases should slow).  If I was "wishcasting", this is what I'd like to see!

As I've noted before, we are seeing a similar pattern in other distressed areas.

by Calculated Risk on 7/10/2014 11:44:00 AM

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

FNC released their May index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 1.0% from April to May (Composite 100 index, not seasonally adjusted). The other RPIs (10-MSA, 20-MSA, 30-MSA) increased between 1.1% and 1.3% in May. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).

The year-over-year change slowed in May, with the 100-MSA composite up 8.2% compared to May 2013.  The index is still down 20.9% from the peak in 2006.

Click on graph for larger image.

This graph shows the year-over-year change based on the FNC index (four composites) through May 2014. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

This might be the beginning of a slowdown in prices increases in the FNC index.

The May Case-Shiller index will be released on Tuesday, July 29th, and I expect Case-Shiller to show a further slowdown in price increases.

by Calculated Risk on 7/10/2014 10:07:00 AM

From Trulia chief economist Jed Kolko: Despite Home Price Slowdown, Wages Can’t Keep Up With Prices

In June 2014, prices were up 8.1% year-over-year and 2.6% quarter-over-quarter, compared with 9.5% and 3.1%, respectively, in June 2013. ... But despite this national slowdown in price gains, price increases continue to be widespread, with 97 of 100 metros posting year-over-year price gains – the most since the recovery began. Furthermore, asking prices in June rose at their highest month-over-month rate (1.2%) in sixteen months.

The price slowdown has been particularly sharp in the boom-and-bust markets of California and the Southwest, where the recession was severe, the recovery was dramatic, and the slowdown is now most pronounced. In Phoenix, Las Vegas, Sacramento, and Orange County, price gains have skidded to a stop or gone into reverse in the past quarter after posting gains of more than 20% year-over-year in June 2013. Although these four housing markets all still have average or above-average year-over-year price increases in June 2014, their slowdowns or reversals in the most recent quarter foreshadow a continued deceleration in year-over-year gains ...
...
Rental Affordability Worsens as Rents Rise 5.5% Year-over-Year
Rent increases outpaced wage increases in all of the 25 largest Rents rose more than 10% year-over-year in Miami, Oakland, San Francisco, San Diego, and Denver. Among these five markets with the largest rent increases, all but Denver are among the nation’s least affordable rental markets.
emphasis added

Asking prices had been slowing down, although there was a slight increase in year-over-year prices in June ... in November 2013, year-over-year asking prices were up 12.2%, in December, the year-over-year increase slowed slightly to 11.9%. In January 11.4%, in February 10.4%, in March 10.0%, April 9.0%, May 8.0%, but now 8.1% in June.


Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and this suggests further house price increases, but probably at a slower rate, over the next few months on a seasonally adjusted basis.

by Calculated Risk on 7/10/2014 08:34:00 AM

The DOL reports:

In the week ending July 5, the advance figure for seasonally adjusted initial claims was 304,000, a decrease of 11,000 from the previous week's unrevised level of 315,000. The 4-week moving average was 311,500, a decrease of 3,500 from the previous week's unrevised average of 315,000.

There were no special factors impacting this week's initial claims.

The previous week was unrevised at 315,000.

The following graph shows the 4-week moving average of weekly claims since January 1971.

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 311,400.

This was lower than the consensus forecast of 316,000.  The 4-week average is now at normal levels for an expansion.

by Calculated Risk on 7/09/2014 08:17:00 PM

Here is an updated housing and mortgage forecast from Goldman Sachs economist Hui Shan: Housing at half time: activity picks up while prices slow down

There are clear signs of house price growth deceleration. Across various indices, year over year appreciation rate has declined from double digits to high single digits. ... We update our bottom-up house price forecast model. At the national level, we expect house price growth to fall from 9.0% during the past year to 4.7% in the coming year and 3.0% in the year thereafter.
...
We now expect mortgage rate to rise to 4.5% by year-end.
...
the underlying housing recovery continues. ... Although we see housing activity improving further in the second half of 2014, we expect the pace of the recovery to be moderate.
emphasis added

CR Note: I also expect house price increases to slow, and for activity to pickup going forward. At the end of 2013, mortgage rates were around 4.62%, so Goldman is forecasting rates will down year-over-year (rates are currently down about 45 bps compared to a year ago according to Mortgage News Daily).

Thursday:
• Early: Trulia Price Rent Monitors for June. This is the index from Trulia that uses asking house prices adjusted both for the mix of homes listed for sale and for seasonal factors.

• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 316 thousand from 315 thousand.

• At 10:00 AM, the Monthly Wholesale Trade: Sales and Inventories report for May. The consensus is for a 0.6% increase in inventories.

• At 4:30 PM, Speech by Fed Vice Chairman Stanley Fischer, Financial Sector Reform, At the Martin Feldstein Lecture, hosted by the National Bureau of Economic Research, Cambridge, Massachusetts

by Calculated Risk on 7/09/2014 04:49:00 PM

This is a key distressed market to follow since Phoenix saw a large bubble / bust followed by strong investor buying.

The Arizona Regional Multiple Listing Service (ARMLS) reports (table below):

1) Overall sales in June were down 11% year-over-year and at the lowest for June since 2008.

2) Cash Sales (frequently investors) were down about 40%, so investor buying appears to be declining. Non-cash sales were up about 6% year-over-year.

3) Active inventory is now increasing rapidly and is up 43% year-over-year - and at the highest level for June since 2011.

Inventory has clearly bottomed in Phoenix (A major theme for housing in 2013).   And more inventory (a theme this year) - and less investor buying - suggests price increases should slow sharply in 2014.

According to Case-Shiller, Phoenix house prices bottomed in August 2011 (mostly flat for all of 2011), and then increased 23% in 2012, and another 15% in 2013.  Those large increases were probably due to investor buying, low inventory and some bounce back from the steep price declines in 2007 through 2010.  Now, with more inventory, price increases should flatten out in 2014.

We only have Case-Shiller through April, but the Zillow index shows Phoenix prices up slightly year-to-date through May.

June Residential Sales and Inventory, Greater Phoenix Area, ARMLS
	Sales	YoY Change Sales	Cash Sales	Percent Cash	Active Inventory	YoY Change Inventory
June 2008	5,748	---	1,093	19.0%	53,8262	---
June 2009	9,325	62.2%	3,443	36.9%	38,358	---2
June 2010	9,278	-0.5%	3,498	37.7%	41,869	9.2%
June 2011	11,134	20.0%	5,001	44.9%	29,203	-30.3%
June 2012	9,133	-18.0%	4,272	46.8%	19,857	-32.0%
June 2013	8,150	-10.8%	3,055	37.5%	19,541	-1.6%
June 2014	7,239	-11.2%	1,854	25.6%	27,954	43.1%
1 June 2008 does not include manufactured homes, ~100 more 2 June 2008 Inventory includes pending

by Calculated Risk on 7/09/2014 02:00:00 PM

From the Fed: Minutes of the Federal Open Market Committee, June 17-18, 2014. Excerpt:

Some committee members had been asked by members of the public whether, if tapering in the pace of purchases continues as expected, the final reduction would come in a single $15 billion per month reduction or in a $10 billion reduction followed by a $5 billion reduction. Most participants viewed this as a technical issue with no substantive macroeconomic consequences and no consequences for the eventual decision about the timing of the first increase in the federal funds rate--a decision that will depend on the Committee's evolving assessments of actual and expected progress toward its objectives. In light of these considerations, participants generally agreed that if incoming information continued to support its expectation of improvement in labor market conditions and a return of inflation toward its longer-run objective, it would be appropriate to complete asset purchases with a $15 billion reduction in the pace of purchases in order to avoid having the small, remaining level of purchases receive undue focus among investors. If the economy progresses about as the Committee expects, warranting reductions in the pace of purchases at each upcoming meeting, this final reduction would occur following the October meeting.
emphasis added

And more on Monetary Policy Normalization:

Meeting participants continued their discussion of issues associated with the eventual normalization of the stance and conduct of monetary policy. The Committee's consideration of this topic was undertaken as part of prudent planning and did not imply that normalization would necessarily begin sometime soon. A staff presentation included some possible strategies for implementing and communicating monetary policy during a period when the Federal Reserve will have a very large balance sheet. In addition, the presentation outlined design features of a potential ON RRP facility and discussed options for the Committee's policy of rolling over maturing Treasury securities at auction and reinvesting principal payments on all agency debt and agency mortgage-backed securities (MBS) in agency MBS.

Most participants agreed that adjustments in the rate of interest on excess reserves (IOER) should play a central role during the normalization process. It was generally agreed that an ON RRP facility with an interest rate set below the IOER rate could play a useful supporting role by helping to firm the floor under money market interest rates. One participant thought that the ON RRP rate would be the more effective policy tool during normalization in light of the wider variety of counterparties eligible to participate in ON RRP operations. The appropriate size of the spread between the IOER and ON RRP rates was discussed, with many participants judging that a relatively wide spread--perhaps near or above the current level of 20 basis points--would support trading in the federal funds market and provide adequate control over market interest rates. Several participants noted that the spread might be adjusted during the normalization process. A couple of participants suggested that adequate control of short-term rates might be accomplished with a very wide spread or even without an ON RRP facility. A few participants commented that the Committee should also be prepared to use its other policy tools, including term deposits and term reverse repurchase agreements, if necessary. Most participants thought that the federal funds rate should continue to play a role in the Committee's operating framework and communications during normalization, with many of them indicating a preference for continuing to announce a target range. However, a few participants thought that, given the degree of uncertainty about the effects of the Committee's tools on market rates, it might be preferable to focus on an administered rate in communicating the stance of policy during the normalization period. In addition, participants examined possibilities for changing the calculation of the effective federal funds rate in order to obtain a more robust measure of overnight bank funding rates and to apply lessons from international efforts to develop improved standards for benchmark interest rates.

While generally agreeing that an ON RRP facility could play an important role in the policy normalization process, participants discussed several potential unintended consequences of using such a facility and design features that could help to mitigate these consequences. Most participants expressed concerns that in times of financial stress, the facility's counterparties could shift investments toward the facility and away from financial and nonfinancial corporations, possibly causing disruptions in funding that could magnify the stress. In addition, a number of participants noted that a relatively large ON RRP facility had the potential to expand the Federal Reserve's role in financial intermediation and reshape the financial industry in ways that were difficult to anticipate. Participants discussed design features that could address these concerns, including constraints on usage either in the aggregate or by counterparty and a relatively wide spread between the ON RRP rate and the IOER rate that would help limit the facility's size. Several participants emphasized that, although the ON RRP rate would be useful in controlling short-term interest rates during normalization, they did not anticipate that such a facility would be a permanent part of the Committee's longer-run operating framework. Finally, a number of participants expressed concern about conducting monetary policy operations with nontraditional counterparties.

Participants also discussed the appropriate time for making a change to the Committee's policy of rolling over maturing Treasury securities at auction and reinvesting principal payments on all agency debt and agency MBS in agency MBS. It was noted that, in the staff's models, making a change to the Committee's reinvestment policy prior to the liftoff of the federal funds rate, at the time of liftoff, or sometime thereafter would be expected to have only limited implications for macroeconomic outcomes, the Committee's statutory objectives, or remittances to the Treasury. Many participants agreed that ending reinvestments at or after the time of liftoff would be best, with most of these participants preferring to end them after liftoff. These participants thought that an earlier change to the reinvestment policy would involve risks to the economic outlook if it was seen as suggesting that the Committee was likely to tighten policy more rapidly than currently anticipated or if it had unexpectedly large effects in MBS markets; moreover, an early change could add complexity to the Committee's communications at a time when it would be clearer to signal changes in policy through interest rates alone. However, some participants favored ending reinvestments prior to the first firming in policy interest rates, as stated in the Committee's exit strategy principles announced in June 2011. Those participants thought that such an approach would avoid weakening the credibility of the Committee's communications regarding normalization, would act to modestly reduce the size of the Federal Reserve's balance sheet, or would help prepare the public for the eventual rise in short-term interest rates. Regardless of whether they preferred to introduce a change to the Committee's reinvestment policy before or after the initial tightening in short-term interest rates, a number of participants thought that it might be best to follow a graduated approach with respect to winding down reinvestments or to manage reinvestments in a manner that would smooth the decline in the balance sheet. Some stressed that the details should depend on financial and economic conditions.

Overall, participants generally expressed a preference for a simple and clear approach to normalization that would facilitate communication to the public and enhance the credibility of monetary policy. It was observed that it would be useful for the Committee to develop and communicate its plans to the public later this year, well before the first steps in normalizing policy become appropriate. Most participants indicated that they expected to learn more about the effects of the Committee's various policy tools as normalization proceeds, and many favored maintaining flexibility about the evolution of the normalization process as well as the Committee's longer-run operating framework. Participants requested additional analysis from the staff on issues related to normalization and agreed that it would be helpful to continue to review these issues at upcoming meetings.

by Calculated Risk on 7/09/2014 10:35:00 AM

A few comments from Goldman Sachs economist Alec Phillips:

The House and Senate both appear to be finally moving forward with plans to provide additional funding for the nearly exhausted highway trust fund and to extend the program through at least year end, though there are still several areas of disagreement that need to be worked out. Resolution of the issue by later this month should provide greater certainty to state governments that might otherwise pull back on new construction in the absence of a legislative fix.

The legislation that is beginning to move through Congress is notable in two other respects. First, it makes no changes to international corporate tax rules (i.e., corporate inversions), seemingly taking the prospect for congressional intervention off the table until after the election. Second, the House plan would lower the minimum contribution that defined benefit pension plan sponsors must make for the next few years, reducing DB pension plans' demand for financial assets but increasing their tax liabilities.

... Our expectation is that without a viable long-term funding mechanism a multi-year renewal of the program will be difficult. The gasoline tax that has traditionally funded most federal transportation spending has not been raised since 1993 and receipts have not kept up with the increased spending out of the fund. Unless a solution can be found--either a gasoline tax increase or a new long-term funding source--Congress may simply adopt a series of short-term renewals.

First a few words from Ronald Reagan from November 1982 when he proposed raising the gasoline tax:

This special holiday weekend is a time when we all give thanks for the many things our land is blessed with. It's also a fitting time for us to think about ways in which we can preserve those blessings for future generations.

One of our great material blessings is the outstanding network of roads and highways that spreads across this vast continent. ... Lately, driving isn't as much fun as it used to be. Time and wear have taken their toll on America's roads and highways. ...

We simply cannot allow this magnificent system to deteriorate beyond repair. The time has come to preserve what past Americans spent so much time and effort to create, and that means a nationwide conservation effort in the best sense of the word. America can't afford throwaway roads or disposable transit systems. The bridges and highways we fail to repair today will have to be rebuilt tomorrow at many times the cost.
emphasis added

A few key points:
• This is just a short term fix until after the election, but I expect it will happen.
• Historically both parties supported infrastructure spending and raising user fees to support the spending (see Reagan's comments).
• The gasoline tax hasn't been increased since August 1993 (it is a fixed amount of 18.4 cents per gallon). If the tax was indexed to inflation, it would be 30 cents per gallon now (and the Highway Trust Fund would be in good shape).
• And on budget accounting: Although building a bridge is obviously an investment, the Federal Government does not have a capital account. These investments are just expensed (a company would depreciate the expenditure over a number of years).
• Although downside risks have diminished this year, I expect Congress to be a significant downside risk in 2015 (with more dumb and damaging actions like in 2011 and 2013).