by Calculated Risk on 12/12/2014 08:06:00 AM

During the recession, I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales). For some 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 November 2014, 11.5% of all resales were distressed sales. This was down from 12.1% last month, and down from 15.5% in November 2013.

The percentage of REOs was at 5.3%, and the percentage of short sales was 6.2%.

Here are the statistics for November.

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 (equity) sales that started in 2012 (blue) as the percentage of distressed sales declined sharply.

Active Listing Inventory for single family homes increased 36.6% year-over-year (YoY) in November.  In general the YoY increases have been trending down after peaking at close to 100%, however this was a larger YoY increase than in October.

Cash buyers accounted for 16.9% of all sales, down from 25.0% in November 2013 (frequently investors).  This has been trending down, and it appears investors are becoming much less of a factor in Sacramento.

Total sales were down 6.1% from November 2013, and conventional equity sales were down 1.6% compared to the same month last year.

Summary: Distressed sales down sharply, cash buyers are down significantly, and inventory up significantly (but increases slowing).   This is what we'd expect to see in a healing market.  As I've noted before, we are seeing a similar pattern in other distressed areas.

by Calculated Risk on 12/11/2014 07:11:00 PM

Would you make an unsecured personal loan to an individual so they can pay off $14,000 in credit card debt? If so, at what interest rate (the credit card debt is at 17%). The person has a 15 year credit history, a FICO score of 699, an annual income of $73,000 and a DTI of 17% (excluding mortgage debt).

Maybe for a close friend or family member, I'd consider helping - if I knew all the circumstances.  However, for everyone else, my answer isn't no, it is Hell No!

The first guideline of personal finance is to pay off your credit card balance every month (with exceptions for extraordinary events). This person has a 15 year credit history - is probably in their 30s - and still can't pay off their credit card balance every month?

Maybe there was an extraordinary event - medical bills for a family member or maybe the borrower lost their job for some time.  That would make a difference.   But for most borrowers, I suspect they have just lived a little beyond their means.

If so, imagine what will happen after they pay off their credit card. In a year or two, it seems likely they will have run up their credit card debt again.

As long as the economy is expanding, and the person keeps their job - they will probably pay this personal loan.   So, with no recession on the horizon, a 3 year loan right now will probably perform well.  But what happens during the next recession?

This is the average Lending Club borrower (that they call "quality").    Yes - an individual lender can diversify among a number of borrowers of the same credit quality (that is less risky than lending to one person), but this isn't for me.

Friday:
• At 8:30 AM ET, the Producer Price Index for November from the BLS. The consensus is for a 0.1% decrease in prices, and a 0.1% increase in core PPI.

• At 9:55 AM, Reuter's/University of Michigan's Consumer sentiment index (preliminary for December). The consensus is for a reading of 89.5, up from 88.8 in November.

by Calculated Risk on 12/11/2014 04:37:00 PM

Note: This is not Mortgage Equity Withdrawal (MEW) data from the Fed. The last MEW data from Fed economist Dr. Kennedy was for Q4 2008.

The following data is calculated from the Fed's Flow of Funds data (released this morning) and the BEA supplement data on single family structure investment. This is an aggregate number, and is a combination of homeowners extracting equity - hence the name "MEW", but there is still little (but increasing) MEW right now - and normal principal payments and debt cancellation.

For Q3 2014, the Net Equity Extraction was minus $26 billion, or a negative 0.8% of Disposable Personal Income (DPI). 

Click on graph for larger image.

This graph shows the net equity extraction, or mortgage equity withdrawal (MEW), results, using the Flow of Funds (and BEA data) compared to the Kennedy-Greenspan method.

There are smaller seasonal swings right now, perhaps because there is a little actual MEW (this is heavily impacted by debt cancellation right now).

The Fed's Flow of Funds report showed that the amount of mortgage debt outstanding increased by $12 billion in Q3. This was only the second quarterly increase in mortgage debt since Q1 2008.

The Flow of Funds report also showed that Mortgage debt has declined by almost $1.3 trillion since the peak. This decline is mostly because of debt cancellation per foreclosures and short sales, and some from modifications. There has also been some reduction in mortgage debt as homeowners paid down their mortgages so they could refinance. With residential investment increasing, and a slower rate of debt cancellation, it is possible that MEW will turn positive again soon.

For reference:

Dr. James Kennedy also has a simple method for calculating equity extraction: "A Simple Method for Estimating Gross Equity Extracted from Housing Wealth". Here is a companion spread sheet (the above uses my simple method).

For those interested in the last Kennedy data included in the graph, the spreadsheet from the Fed is available here.

by Calculated Risk on 12/11/2014 12:23:00 PM

The Federal Reserve released the Q3 2014 Flow of Funds report today: Flow of Funds.

According to the Fed, household net worth decreased slightly in Q3 compared to Q2:

The net worth of households and nonprofits dipped slightly to $81.3 trillion during the third quarter of 2014. The value of directly and indirectly held corporate equities decreased $0.7 trillion and the value of real estate rose $245 billion.

Prior to the recession, net worth peaked at $67.9 trillion in Q2 2007, and then net worth fell to $54.9 trillion in Q1 2009 (a loss of $13.0 trillion). Household net worth was at $81.3 trillion in Q3 2014 (up $26.4 trillion from the trough in Q1 2009).

The Fed estimated that the value of household real estate increased to $20.4 trillion in Q3 2014. The value of household real estate is still $2.2 trillion below the peak in early 2006.

Click on graph for larger image.

The first graph shows Households and Nonprofit net worth as a percent of GDP.  Household net worth, as a percent of GDP, is above peak in 2006 (housing bubble), and above the stock bubble peak.

This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

This ratio was increasing gradually since the mid-70s, and then we saw the stock market and housing bubbles. The ratio has been trending up but decreased slightly in Q3.

This graph shows homeowner percent equity since 1952.

Household percent equity (as measured by the Fed) collapsed when house prices fell sharply in 2007 and 2008.

In Q3 2014, household percent equity (of household real estate) was at 53.9% - up from Q2, and the highest since Q1 2007. This was because of an increase in house prices in Q3 (the Fed uses CoreLogic).

Note: about 30.3% of owner occupied households had no mortgage debt as of April 2010. So the approximately 50+ million households with mortgages have far less than 53.9% equity - and millions still have negative equity.

The third graph shows household real estate assets and mortgage debt as a percent of GDP.

Mortgage debt increased by $12 billion in Q3.

Mortgage debt has declined by $1.26 trillion from the peak. Studies suggest most of the decline in debt has been because of foreclosures (or short sales), but some of the decline is from homeowners paying down debt (sometimes so they can refinance at better rates).

The value of real estate, as a percent of GDP, was down in Q3 (as GDP increased faster than house prices), and somewhat above the average of the last 30 years (excluding bubble).

by Calculated Risk on 12/11/2014 09:15:00 AM

Earlier from the DOL reported:

In the week ending December 6, the advance figure for seasonally adjusted initial claims was 294,000, a decrease of 3,000 from the previous week's unrevised level of 297,000. The 4-week moving average was 299,250, an increase of 250 from the previous week's unrevised average of 299,000.

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

The previous week was unrevised at 297,000.

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 increased to 299,250.

This was close to the consensus forecast of 296,000, and the level suggests few layoffs.

by Calculated Risk on 12/11/2014 08:34:00 AM

On a monthly basis, retail sales increased 0.7% from October to November (seasonally adjusted), and sales were up 5.1% from November 2013. Sales in October were revised up from 0.3% to 0.5%.

From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for November, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $449.3 billion, an increase of 0.7 percent from the previous month, and 5.1 percent above November 2013. ... The September to October 2014 percent change was revised from +0.3 percent to +0.5 percent.

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales ex-gasoline increase 0.9%.

Retail sales ex-autos increased 0.5%. 

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail sales ex-gasoline increased by 6.0% on a YoY basis (5.1% for all retail sales).

The increase in November was above consensus expectations of a 0.4% increase.  Both September and October were revised up.

This was a strong report.

by Calculated Risk on 12/10/2014 07:24:00 PM

Big stories today: Falling oil prices, possible budget deal, and Q3 GDP likely to be revised up.

On oil prices, from the WSJ: Oil Prices Tumble Amid Global Supply Glut

The benchmark U.S. oil price slid 4.5% to $60.94 a barrel, the lowest level since July 2009 on the New York Mercantile Exchange. It was the biggest one-day drop since Nov. 28, the session that followed OPEC’s decision to maintain its oil-output target.

Brent crude, a gauge of global prices, fell 3.9%, or $2.60, to $64.24 a barrel, also the lowest since July 2009 on ICE Futures Europe.

On the budget, from Peter Orzag at Bloomberg: Don't Get Too Excited About the Budget Deal

Thanks to the spending bill that House and Senate leaders have negotiated, the federal government will avoid a shutdown. And that's great. Unfortunately, though, that’s the highest praise that can be attached to the deal.

It seems likely there won't be a shutdown. But that is a concern for 2015.

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to decrease to 296 thousand from 297 thousand.

• Also at 8:30 AM, Retail sales for November will be released. The consensus is for retail sales to increase 0.4% in November, and to increase 0.1% ex-autos.

• At 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for September. The consensus is for a 0.3% increase in inventories.

• At 12:00 PM, Q3 Flow of Funds Accounts of the United States from the Federal Reserve.

by Calculated Risk on 12/10/2014 03:55:00 PM

Economist Tom Lawler sent me the preliminary table below of short sales, foreclosures and cash buyers for a few selected cities in November.

On distressed: Total "distressed" share is down in these markets mostly due to a decline in short sales (the Mid-Atlantic was unchanged).

Short sales are down significantly in these areas.

Foreclosures are up in Las Vegas and the Mid-Atlantic (working through the logjam).

The All Cash Share (last two columns) is declining year-over-year. As investors pull back, the share of all cash buyers will probably continue to decline.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share		All Cash Share
	Nov-14	Nov-13	Nov-14	Nov-13	Nov-14	Nov-13	Nov-14	Nov-13
Las Vegas	9.5%	21.0%	8.7%	7.0%	18.2%	28.0%	32.8%	43.7%
Reno**	6.0%	17.0%	6.0%	6.0%	12.0%	23.0%
Phoenix							28.0%	34.0%
Minneapolis	3.1%	5.0%	10.2%	16.9%	13.4%	21.9%
Mid-Atlantic	4.7%	7.5%	11.0%	8.1%	15.7%	15.7%	19.1%	19.6%
Chicago (City)					20.2%	30.8%
Tucson							26.3%	32.2%
Toledo							35.4%	37.2%
Des Moines							19.3%	19.9%
Peoria							19.7%	21.8%
Georgia***							26.5%	N/A
Omaha							21.1%	21.6%
Memphis*			15.1%	20.5%
*share of existing home sales, based on property records **Single Family Only ***GAMLS

by Calculated Risk on 12/10/2014 11:46:00 AM

From Reuters: U.S. services data point to upward revision to third-quarter GDP

Economists said the data suggested third-quarter consumer spending could be raised by at least two-tenths of a percentage point from a 2.2 percent annual rate when the government publishes its third estimate later this month.

That combined with data on wholesale inventories and construction spending could see third-quarter GDP revised up to a 4.4 percent annual pace from the 3.9 percent rate reported last month.

From the WSJ: U.S. Economic Growth Could Get Boost From Services Spending

J.P. Morgan Chase said Wednesday it expected the QSS will lead to stronger estimates for spending, raising the GDP growth rate to 4.4% from an earlier prediction of 4.3%. Barclays raised its GDP prediction for the third quarter to 4.2% from 4.1%.

Here is the Q3 Quarterly Services Press Release

The U.S. Census Bureau announced today that the estimate of U.S. information sector revenue for the third calendar quarter of 2014, adjusted for seasonal variation but not for price changes, was $336.5 billion, an increase of 1.0 percent (± 0.8%) from the second quarter of 2014 and up 5.0 percent (± 0.8%) from the third quarter of 2013.

by Calculated Risk on 12/10/2014 09:31:00 AM

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

FNC released their October index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values decreased 0.1% from September to October (Composite 100 index, not seasonally adjusted). The other RPIs (10-MSA, 20-MSA, 30-MSA) decreased between 0.1% and 0.3% in October. These indexes are not seasonally adjusted (NSA), and are for non-distressed home sales (excluding foreclosure auction sales, REO sales, and short sales).

Notes: In addition to the composite indexes, FNC presents price indexes for 30 MSAs. FNC also provides seasonally adjusted data.

The year-over-year (YoY) change was lower in October than in September, with the 100-MSA composite up 5.7% compared to October 2013.   In general, for FNC, the YoY increase has been slowing since peaking in February at 9.0%.

The index is still down 19.6% 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 October 2014. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

All of the price indexes have been showing a slowdown in price increases.

The October Case-Shiller index will be released on Tuesday, December 30th, and I expect Case-Shiller to show a further slowdown in YoY price increases.