by Calculated Risk on 12/16/2014 04:44:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Back to Pre-Taper-Tantrum Levels

Mortgage rates fell decisively today, bringing some lenders back in line with rate sheets seen on May 22nd, 2013. That's significant because it was arguably the first day of the 'Taper Tantrum,' when markets began pricing in the effects of a reduction in Fed asset purchases. On a more quantitative note, it was significant because it was one of the most abruptly negative days in modern mortgage rate history--one of several that would be seen in the ensuing months.

Simply put, for more than a full year, borrowers and mortgage professionals would have been thrilled with the chance to go back in time to lock May 22nd, 2013 rates. In more than a few cases, now they can.

The most prevalently-quoted conforming 30yr fixed rate for top tier borrowers is now in transit between 3.875% and 3.75%.

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 12/16/2014 02:24:00 PM

From DataQuick: Bay Area Home Sales Slowest in Six Years; Single-Digit Price Increase

Home sales dropped to the lowest level for the month of November since 2008, the result of a limited number of homes for sale, cautious buyers, a challenging mortgage market and a quirk of the calendar that resulted in a relatively low number days for recording deals. ... A total of 6,003 new and resale houses and condos sold in the nine-county Bay Area in November 2014. That was down 22.0 percent from 7,693 in October of this year and down 9.9 percent from 6,659 in November 2013, according to CoreLogic DataQuick data.

A decline in sales from October to November is normal for the season. It’s likely that this November’s sales decline from October was especially sharp because of a calendar issue: There were only 17 days on which home sales could be recorded at county recorders’ offices this November, compared with 22 or 23 days in October, depending on the county. Over the last decade, there has been an average of about 19 days for such recordings in the month of November.
...
“Each calendar month has its own set of characteristics, its own personality. November is always kind of an interlude month, and the statistics aren’t really very good for predicting upcoming activity. That said, we did see a continuation of long-term trends: Low supply levels, a dysfunctional mortgage market and dormant market categories. This could change fast, and the big question then will be just how much pent-up demand is out there. No one knows,” said John Karevoll, CoreLogic DataQuick analyst.
...
Foreclosure resales accounted for 2.8 percent of all resales in November, unchanged from a revised 2.8 percent in October, and down from 3.7 percent in November 2013. Foreclosure resales in the Bay Area peaked at 52.0 percent in February 2009, while the monthly average over the past 17 years is 9.7 percent. Foreclosure resales are purchased homes that had been previously foreclosed upon in the prior 12 months.

Short sales made up an estimated 4.3 percent of Bay Area resales in November, up from an estimated 3.4 percent in October and down from 7.2 percent in November 2013. Short sales are transactions in which the sale price fell short of what was owed on the property.
emphasis added

Note: I live in California, and in my area it seems like a large number of homes went "pending" during the last few weeks. If that is happening elsewhere, then we will see an increase in sales in December and January (seasonally adjusted).  But November was soft.

by Calculated Risk on 12/16/2014 12:45:00 PM

From DataQuick: Southern California November Home Sales Fall Sharply; Median Sale Price Holds Steady Again

Home sales dropped to the lowest level for the month of November in seven years, the result of a relatively low number of days for recording deals, as well as fewer investor purchases and other market factors. ... A total of 15,643 new and resale houses and condos sold in Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties in November 2014. That was down 18.8 percent from 19,271 sales in October, and down 9.5 percent from 17,283 sales in November 2013, according to CoreLogic DataQuick data.

On average, Southern California sales have fallen 8.4 percent between October and November since 1988, when CoreLogic DataQuick data began. It’s likely that this November’s sales decline from October was especially sharp because of a calendar issue: There were only 17 days on which home sales could be recorded at county recorders' offices this November, compared with 22 or 23 days in October, depending on the county. Over the last decade, there has been an average of about 19 days for such recordings in the month of November. ...

"Southern California home sales are closing on a low note in 2014,” said Andrew LePage, data analyst for CoreLogic DataQuick. “Inventory still lags demand in many markets and traditional buyers haven’t filled the void left by the investors who’ve pulled out. Among would-be buyers, affordability and mortgage availability remain as hurdles, as do concerns about job security and the direction of the housing market. But there are reasons to expect more housing demand ahead. According to recent data from the federal government, job and income growth has improved. Many people who became renters after a foreclosure or short sale over the past seven years will want to buy again. And potential home buyers sitting on the fence might be tempted to jump off if they see evidence that mortgage rates will spike from today’s exceptionally low levels.”
...
Foreclosure resales represented 5.3 percent of the Southern California resale market in November. That was up from a revised 4.9 percent in October and down from 6.3 percent a year earlier. In recent months the foreclosure resale rate has been the lowest since early 2007. In the current cycle, foreclosure resales hit a high of 56.7 percent in February 2009. Foreclosure resales are purchased homes that had been previously foreclosed upon in the prior 12 months.

Short sales made up an estimated 6.2 percent of resales in November, up from a revised 6.0 percent in October and down from 10.5 percent in November 2013. Short sales are transactions in which the sale price fell short of what was owed on the property.
emphasis added

The NAR is scheduled to release existing home sales for November on Monday, December 22nd.  Housing economist Tom Lawler is forecasting the NAR will report November sales of 4.93 million SAAR.

by Calculated Risk on 12/16/2014 10:40:00 AM

A year ago, for November 2013, housing starts were reported at 1.091 million on a SAAR basis (seasonally adjusted annual rate), up 29.6% from November 2012.  Starts in November 2013 have since been revised up to 1.105 million. That huge increase in starts was probably one reason that many analysts, myself included, were overly optimistic for housing starts in 2014.

This year total starts in November were reported at 1.028 million SAAR, down 7.0% from a year ago. That sounds weak, but actually starts in the 2nd half of 2014 have averaged 1.032 million, up 10.1% from the 937 thousand during the same period last year - including that strong November in 2013!

In early 2014, housing starts were very weak - down year-over-year in Q1 - but starts have picked up in the 2nd half.

A few numbers: There were 927 thousand total housing starts during the first eleven months of 2014 (not seasonally adjusted, NSA), up 8.2% from the 857 thousand during the same period of 2013.  Single family starts are up 4.4%, and multifamily starts up 16.6%.  The key weakness has been in single family starts.

The following table shows the annual housing starts since 2005, and the percent change from the previous year (estimates for 2014). The housing recovery has slowed in 2014, especially for single family starts.  However I expect further growth in starts over the next several years.

Housing Starts (000s) and Annual Change
	Total	Total % Change	Single	Single % Change
2005	2,068.3	5.8%	1,715.8	6.5%
2006	1,800.9	-12.9%	1,465.4	-14.6%
2007	1,355.0	-24.8%	1,046.0	-28.6%
2008	905.5	-33.2%	622.0	-40.5%
2009	554.0	-38.8%	445.1	-28.4%
2010	586.9	5.9%	471.2	5.9%
2011	608.8	3.7%	430.6	-8.6%
2012	780.6	28.2%	535.3	24.3%
2013	924.9	18.5%	617.6	15.4%
20141	997.0	7.8%	644.0	4.3%
1Estimate for 2014

This graph shows the month to month comparison between 2013 (blue) and 2014 (red).  Starts in 2014 were above the same month in 2013 for seven consecutive months prior to November.

Click on graph for larger image.

December will be another difficult year-over-year comparison, but I expect to see solid year-over-year growth in Q1 2015.

Below is an update to the graph comparing multi-family starts and completions. Since it usually takes over a year on average to complete a multi-family project, there is a lag between multi-family starts and completions. Completions are important because that is new supply added to the market, and starts are important because that is future new supply (units under construction is also important for employment).

These graphs use a 12 month rolling total for NSA starts and completions.

The blue line is for multifamily starts and the red line is for multifamily completions.

The rolling 12 month total for starts (blue line) increased steadily over the last few years, and completions (red line) have lagged behind - but completions have been catching up (more deliveries), and will continue to follow starts up (completions lag starts by about 12 months).

Most of the growth in multi-family starts is probably behind us - although I expect solid multi-family starts for a few more years (based on demographics).

The second graph shows single family starts and completions. It usually only takes about 6 months between starting a single family home and completion - so the lines are much closer. The blue line is for single family starts and the red line is for single family completions.

Note the exceptionally low level of single family starts and completions.  The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

by Calculated Risk on 12/16/2014 08:30:00 AM

From the Census Bureau: Permits, Starts and Completions

Housing Starts:
Privately-owned housing starts in November were at a seasonally adjusted annual rate of 1,028,000. This is 1.6 percent below the revised October estimate of 1,045,000 and is 7.0 percent below the November 2013 rate of 1,105,000.

Single-family housing starts in November were at a rate of 677,000; this is 5.4 percent below the revised October figure of 716,000. The November rate for units in buildings with five units or more was 340,000.
emphasis added

Building Permits:
Privately-owned housing units authorized by building permits in November were at a seasonally adjusted annual rate of 1,035,000. This is 5.2 percent below the revised October rate of 1,092,000 and is 0.2 percent below the November 2013 estimate of 1,037,000.

Single-family authorizations in November were at a rate of 639,000; this is 1.2 percent below the revised October figure of 647,000. Authorizations of units in buildings with five units or more were at a rate of 367,000 in November.

Click on graph for larger image.

The first graph shows single and multi-family housing starts for the last several years.

Multi-family starts (red, 2+ units) increased in November (Multi-family is volatile month-to-month).  Multi-family starts are down 11% year-over-year because there was a large increase in starts last November.

Single-family starts (blue) decreased in November.

The second graph shows total and single unit starts since 1968.

 The second graph shows the huge collapse following the housing bubble, and that housing starts have been increasing after moving sideways for about two years and a half years.

This was below expectations of 1.038 million starts in November, however October was revised up by 36 thousand (annual rate), so overall this was a decent report.  The comparison to last year was difficult because of the large increase in starts in November 2013 (that probably was one of the reasons many analysts were too optimistic for 2014).   I'll have more later ...

by Calculated Risk on 12/15/2014 08:32:00 PM

Two related articles ...

From the NY Times: Russia’s Central Bank Abruptly Raises Key Rate to 17%

With Russia scrambling to contain a currency crisis, the country’s central bank, in a surprise middle-of-the-night move, increased its key interest rate to 17 percent, from 10.5 percent.
...
The rate increase came after the ruble plummeted yet again on Monday, by more than 10 percent, to around 64 per dollar. The ruble has lost nearly half its value this year.

From the WSJ: Oil Prices Fall to Fresh Lows

Oil for January delivery fell $1.90, or 3.3%, to close at $55.91 a barrel, the lowest level since May 2009 on the New York Mercantile Exchange.

Brent crude, the global benchmark, slid 1.3% to $61.06 a barrel, the lowest level since July 2009, on ICE Futures Europe.

There is more to the ruble collapse than declining oil prices, but it is a huge factor.

Tuesday:
• At 8:30 AM ET, Housing Starts for November. Total housing starts were at 1.009 million (SAAR) in October. Single family starts were at 696 thousand SAAR in October. The consensus is for total housing starts to increase to 1.038 million (SAAR) in November.

by Calculated Risk on 12/15/2014 06:25:00 PM

Economist Tom Lawler sent me the updated 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 and Orlando were unchanged).

Short sales are down significantly in these areas.

Foreclosures are up in several areas (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	4.1%	7.8%	5.7%	8.0%	9.7%	15.8%	28.0%	34.0%
Sacramento	6.1%	11.0%	5.4%	4.6%	11.5%	15.6%	16.9%	25.0%
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%
Orlando	6.2%	13.7%	27.8%	20.3%	34.0%	34.0%	42.1%	46.2%
So. California*	6.2%	10.5%	5.3%	6.3%	11.5%	16.8%	23.9%	28.1%
Northeast Florida					29.7%	38.1%
Chicago (City)					20.2%	32.8%
Hampton Roads					20.4%	26.9%
Toledo							35.4%	37.2%
Tucson							26.3%	32.2%
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%
Springfield IL**			11.8%	17.6%
*share of existing home sales, based on property records **Single Family Only ***GAMLS

by Calculated Risk on 12/15/2014 04:06:00 PM

From housing economist Tom Lawler

Based on local realtor/MLS reports from across the country, I estimate that US existing home sales as measured by the National Association of Realtors ran at a seasonally adjusted annual rate of about 4.93 million in November, down 6.3% from October’s preliminary pace but up 2.1% from last November’s pace. On the inventory front, the vast majority of local reports showed a larger monthly decline in listings this November compared to last November, and I estimate that the inventory of existing homes for sale as measured by the NAR for the end of November will be 2.12 million, down 4.5% from October and up 3.4% from a year ago.

Finally, a median existing SF home sales price for November that was up about 4.7% from last November would be consistent with local realtor/MLS reports. On this latter point, I should note that the YOY increases shown in the NAR’s median sales prices for the last several months have been higher than local realtor/MLS reports would have suggested.

CR Note: Existing home sales will be released next week on Monday, December 22nd.

by Calculated Risk on 12/15/2014 02:20:00 PM

Recently there has been a dramatic decline in oil prices. This has led to some wild and confusing articles. As an example, Barry Ritholtz excerpted from an article that started: "Most observers thought the Organization of Petroleum Exporting Countries (OPEC) would cut its production to protect its members’ incomes and slash frackers’ profits."

That is wrong. If OPEC cut production, that would help the frackers (not hurt them). And most analysts I know didn't except OPEC to cut production.

For example, from Professor Hamilton on Oct 19th: How will Saudi Arabia respond to lower oil prices?

Oil prices (along with prices of many other commodities) have fallen dramatically since last summer. Some observers are waiting to see if Saudi Arabia responds with significant cutbacks in production. I say, don’t hold your breath.
...
[In October] I discussed the three main factors in the recent fall in oil prices: (1) signs of a return of Libyan production to historical levels, (2) surging production from the U.S., and (3) growing indications of weakness in the world economy.

As far as Libya is concerned, the politics on the ground remain quite unsettled. It makes sense to wait and see if anticipated production gains are really going to hold before anybody makes major adjustments.

In terms of surging U.S. production, the key question is how low the price can get before significant numbers of U.S. producers decide to pull out. If world economic growth indeed slows, and if most of the frackers are willing to keep going strong ... trying to maintain the price ... could be a losing bet for the Saudis. They’d be giving up their own revenue just in order to keep the money flowing into ever-growing operations in Texas and North Dakota.
...
And as for worries of another global economic downturn, so far they are only that– worries. If and when we see a downturn materialize, then I would expect to see the Saudis cut back production.

But until then it’s primarily a question of responding to surging output of U.S. tight oil. My guess is that Saudi Arabia would lower prices rather than cut production as long as that’s the name of the game.
emphasis added

So it was no surprise that OPEC didn't cut production.

And the speculation that oil producers are trying to hurt Iran, Russia, or terrorists ... that is also incorrect.

The reason prices have fallen sharply is supply and demand. It is important to remember that the short term supply and demand curves for oil are very steep. 

If there is little unused capacity, it takes time for more oil production to become available since this involves huge capital intensive projects. And, in the short term, demand is fairly inelastic over a wide range of prices; for the most part people stay with their routines and keep their same vehicle. With two steep curves (supply and demand) we get the following:

Click on graph for larger image.

This is a graph I post in 2005.  Back in 2005, I pointed out that with a small increase in Demand (from D1 to D2), we would see a small increase in Quantity (Q1 to Q2), but a large change in Price (from P1 to P2). Also a large price increase would also occur if we had a small decrease in supply such as a disruption to production, transport or refining.

And the opposite is also true. A relatively small decrease in demand or increase in supply (fracking) could cause a significant decline in prices.  Especially now with OPEC's diminished role (since cutting production helps other producers).

In the long run, supply and demand will adjust to price changes.  But if someone asks why prices have fallen so sharply recently, the answer is "supply and demand" and that the short term supply and demand curves are steep for oil.

by Calculated Risk on 12/15/2014 10:00:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 57 in December, down from 58 in November. Any number above 50 indicates that more builders view sales conditions as good than poor.

From the NAHB: Builder Confidence Drops One Point in December

Following a four-point uptick last month, builder confidence in the market for newly built single-family homes fell one point in December to a level of 57 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today.

“Members in many markets across the country have seen their businesses improve over the course of the year, and we expect builders to remain confident in 2015,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del.

“After a sluggish start to 2014, the HMI has stabilized in the mid-to-high 50s index level trend for the past six months, which is consistent with our assessment that we are in a slow march back to normal,” said NAHB Chief Economist David Crowe. “As we head into 2015, the housing market should continue to recover at a steady, gradual pace.”
...
Two of the three HMI components posted slight losses in December. The index gauging current sales conditions fell one point to 61, while the index measuring expectations for future sales dropped a single point to 65 and the index gauging traffic of prospective buyers held steady at 45.

Looking at the three-month moving averages for regional HMI scores, the West rose by four points to 62 and the Northeast edged up one point to 45, while the Midwest registered a three-point loss to 54 and the South dropped two points to 60.
emphasis added

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was below the consensus forecast of 59.