by Calculated Risk on 1/08/2015 07:49:00 PM

First an important point from Tim Duy: Volatile Week Ahead of Employment Report

I tend agree that the net impact [from the decline in oil prices] will be positive, but note that the negative impacts will be fairly concentrated and easy for the media to sensationalize, while the positive impacts will be fairly dispersed. We all know what is going to happen to rig counts, high-yield energy debt, and the economies of North Dakota and at least parts of Texas. "Kablooey," I think, is the technical term. Easy media fodder. Much more difficult to see the positive impact spread across the real incomes of millions of households, with particularly solid gains at the lower ends of the income distribution. This will be most likely revealed in the aggregate data and be much less newsworthy.
emphasis added

We are already seeing stories about layoffs in oil related industries (and suppliers). However, since the US is a large net importer of oil, the overall impact of lower oil prices should be positive for the US economy. The negative stories are newsworthy, but it is worth remembering - as Tim Duy notes - that the positive stories will be hidden in the aggregate data.

Here was an employment preview I posted earlier: Preview: Employment Report for December

Friday:
• At 8:30 AM ET, the Employment Report for December. The consensus is for an increase of 240,000 non-farm payroll jobs added in December, down from the 321,000 non-farm payroll jobs added in November. The consensus is for the unemployment rate to decline to 5.7% in December from 5.8% the previous month.

• At 10:00 AM, Monthly Wholesale Trade: Sales and Inventories for November. The consensus is for a 0.3% increase in inventories.

by Calculated Risk on 1/08/2015 04:33:00 PM

Just to be clear, current FHA-insured borrowers will need to refinance to obtain the 0.85% annual Mortgage Insurance Premium (MIP).

New borrowers will obtain the lower MIP automatically.

HUD will send out a letter very soon clarifying what this means for borrowers currently in the process of obtaining an FHA-insured loan.

HUD estimates that approximately 100,000 to 200,000 FHA-insured borrowers will refinance in the next year.

by Calculated Risk on 1/08/2015 03:04:00 PM

Update2: Clarification: Current FHA-insured borrowers WILL need to Refinance to obtain lower MIP

I was thinking there would be a refinance boom for FHA loans. The HUD press release read:

"FHA’s new annual premium prices will take effect for all new FHA-insured mortgages endorsed toward the end of January 2015. FHA will publish a mortgagee letter detailing its new pricing structure shortly."
emphasis added

That sounded like people would need to refinance to obtain the lower MIP.

This would be a significant number of borrowers because the annual MIP was increased to 1.15% in April 2011, to 1.25% in April 2012, and to 1.35% in April 2013 (for borrowers with less than 5% down). Looking at the mortgage rates available at those times, it appeared a large number of FHA insured borrowers would consider refinancing now.

However HUD just corrected their press release to read:

"FHA’s new annual premium prices are expected to take effect towards the end of the month. FHA will publish a mortgagee letter detailing its new pricing structure shortly."

The "new FHA-insured" was removed. Update: Or this change could mean that loans currently in the process will receive the old MIP, and loans originated after January will receive the new MIP.  It is difficult to lower the MIP for current borrowers ...

So I'm expecting an FHA refi boom.

by Calculated Risk on 1/08/2015 01:37:00 PM

From Trulia chief economist Jed Kolko: What Falling Oil Prices Mean for Home Prices

Nationwide, asking prices on for-sale homes were up 0.5% month-over-month in December, seasonally adjusted — a slowdown after larger increases in September, October, and November. Year-over-year, asking prices rose 7.7%, down from the 9.5% year-over-year increase in December 2013. Asking prices increased year-over-year in 97 of the 100 largest U.S. metros.

Four of the five markets where asking prices rose most year-over-year are in the South, including Atlanta, Cape Coral-Fort Myers, North Port-Sarasota-Bradenton, and Deltona-Daytona Beach-Ormond Beach. Of the top 10, four are in the Midwest, including Cincinnati, Detroit, Lake-Kenosha Counties, and Indianapolis. Among markets with the largest asking price increases, Houston stands out for having a large local oil industry, accounting for 5.6% of jobs there.

Only Bakersfield and Baton Rouge have an even higher employment share in oil-related industries than Houston. Oklahoma City, Tulsa, New Orleans, and Fort Worth round out the seven large metros where oil-related industries account for at least 2% of employment. It’s not until you look at smaller metros that you find oil-related industries representing a larger employment share. In Williston, ND, and Midland, TX, they account for almost 30% of local jobs. [see graph of percent oil jobs at article]

This history offers three lessons for today’s housing market. First, any negative impact of falling oil prices on home prices should be concentrated in oil-producing markets in Texas, Oklahoma, Louisiana, and other places with large oil-related industries. Second, in these markets, oil prices won’t tank home prices immediately. Rather, falling oil prices in the second half of 2014 might not have their biggest impact on home prices until late 2015 or in 2016. Third, falling oil prices will probably help local economies and home prices in markets that lack oil-related industries.
...
Nationwide, rents rose 6.1% year-over-year in December. The least affordable rental markets are Miami, Los Angeles, and New York, where median rent for a two-bedroom unit eats up more than half of the local average wage.
emphasis added

Note: These asking prices are SA (Seasonally Adjusted) - and adjusted for the mix of homes - and although year-over-year price increases had been slowing, the year-over-year change increased in November.

The month-to-month increase suggests further house price increases over the next few months on a seasonally adjusted basis.

There is much more in the article, especially on the impact of falling oil prices on housing.

by Calculated Risk on 1/08/2015 11:38:00 AM

This is a key distressed market to follow since Las Vegas has seen the largest price decline of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported GLVAR reports local home prices stay up through holidays

According to GLVAR, the total number of existing local homes, condominiums and townhomes sold in December was 2,734, up from 2,483 in November, but down from 2,915 one year ago. At the current sales pace, [GLVAR President Keith] Lynam said Southern Nevada continues to have less than a four-month supply of available homes. REALTORS® consider a six-month supply to be a balanced market.

For all of 2014, GLVAR reported that 36,550 total properties were sold through its MLS. Lynam noted that was the lowest number of sales in at least six years, down from 47,685 sales in 2009; 44,045 in 2010; 48,798 in 2011; 45,698 in 2012; and 41,477 in 2013.
...
GLVAR said 34.1 percent of all local properties sold in December were purchased with cash. That’s up from 31.9 percent in November, but well short of the February 2013 peak of 59.5 percent, suggesting that fewer investors have been buying homes in Southern Nevada.
...
GLVAR has been tracking a two-year trend toward fewer distressed sales and more traditional home sales, where lenders are not controlling the transaction. That continued in December, when 10 percent of all local sales were short sales – which occur when lenders allow borrowers to sell a home for less than what they owe on the mortgage. That’s up slightly from 9.6 percent in November. Another 8 percent of all December sales were bank-owned properties, down from 8.7 percent in November.
...
The total number of single-family homes listed for sale on GLVAR’s Multiple Listing Service in December was 12,377, down 7.8 percent from 13,421 in November and down 7.0 percent from one year ago. GLVAR tracked a total of 3,282 condos and townhomes listed for sale on its MLS in December, down 7.0 percent from 3,529 in November, but up 13.1 percent from December 2013.

By the end of December, GLVAR reported 7,774 single-family homes listed without any sort of offer. That’s down 5.1 percent from 8,195 such homes listed in November, but up 18.0 percent from one year ago. For condos and townhomes, the 2,309 properties listed without offers in December represented a 6.1 percent decrease from 2,458 such properties listed in November, but a 38.8 percent increase from one year ago.
emphasis added

There are several key trends that we've been following:

1) Overall sales were down 6,2% year-over-year.

2) However conventional (equity, not distressed) sales were up about 9% year-over-year.  In December 2013, only 70.8% of all sales were conventional equity.  In December 2014, 82.0% were standard equity sales.   Note: In December 2012, only 44.7% were equity!  A significant change.

3) The percent of cash sales has declined year-over-year from 44.4% in December 2013 to 34.1% in December 2014. (investor buying appears to be declining).

4) Non-contingent inventory is up 18.0% year-over-year. The table below shows the year-over-year change for non-contingent inventory in Las Vegas. Inventory declined sharply through early 2013, and then inventory started increasing sharply year-over-year. It appears the inventory build is slowing (an important change in many areas).

Las Vegas: Year-over-year Change in Non-contingent Inventory
Month	YoY
Jan-13	-58.3%
Feb-13	-53.4%
Mar-13	-42.1%
Apr-13	-24.1%
May-13	-13.2%
Jun-13	3.7%
Jul-13	9.0%
Aug-13	41.1%
Sep-13	60.5%
Oct-13	73.4%
Nov-13	77.4%
Dec-13	78.6%
Jan-14	96.2%
Feb-14	107.3%
Mar-14	127.9%
Apr-14	103.1%
May-14	100.6%
Jun-14	86.2%
Jul-14	55.2%
Aug-14	38.8%
Sep-14	29.5%
Oct-14	25.6%
Nov-14	20.0%
Dec-14	18.0%

by Calculated Risk on 1/08/2015 09:25:00 AM

From CoreLogic: CoreLogic Reports 273,000 Residential Properties Regained Equity in Q3 2014

CoreLogic ... today released new analysis showing nearly 273,000 U.S. homes returned to positive equity in the third quarter of 2014, bringing the total number of mortgaged residential properties with equity to approximately 44.6 million, or 90 percent of all mortgaged properties. Nationwide, borrower equity increased year over year by approximately $800 billion in Q3 2014. The CoreLogic analysis indicates that approximately 5.1 million homes, or 10.3 percent of all residential properties with a mortgage, were still in negative equity as of Q3 2014 compared to 5.4 million homes, or 10.9 percent, for Q2 2014. This compares to a negative equity share of 13.3 percent, or 6.5 million homes, in Q3 2013, representing a year-over-year decrease in the number of underwater homes by almost 1.5 million (1,433,296), or 3.0 percent.

... Of the 44.6 million residential properties with positive equity, approximately 9.4 million, or 19 percent, have less than 20-percent equity (referred to as “under-equitied”) and 1.3 million of those have less than 5-percent equity (referred to as near-negative equity). Borrowers who are “under-equitied” may have a more difficult time refinancing their existing homes or obtaining new financing to sell and buy another home due to underwriting constraints. Borrowers with near-negative equity are considered at risk of moving into negative equity if home prices fall. In contrast, if home prices rose by as little as 5 percent, an additional 1 million homeowners now in negative equity would regain equity. ...

“Nationally, the negative equity share is down over three percentage points over the past year. Declines were concentrated in a handful of states, such as Nevada, Georgia, Michigan and Florida,” said Sam Khater, deputy chief economist for CoreLogic. “Forecasted house price appreciation of about five percent over the next year suggests that negative equity should be at about 8 percent a year from now, still above average, but approaching the pre-crisis level.”
emphasis added

Click on graph for larger image.

This graph shows the break down of negative equity by state. Note: Data not available for some states. From CoreLogic:

"Nevada had the highest percentage of mortgaged properties in negative equity at 25.4 percent, followed by Florida (23.8 percent), Arizona (19 percent), Rhode Island (14.8 percent) and Illinois (14.1 percent). These top five states together account for 33.1 percent of negative equity in the United States."

Note: The share of negative equity is still very high in Nevada and Florida, but down from a year ago (Q3 2013) when the negative equity share in Nevada was at 32.2 percent, and at 28.8 percent in Florida.

The second graph shows the distribution of home equity in Q3 compared to Q2 2014. Close to 4% of residential properties have 25% or more negative equity, down from Q2.

In Q3 2013, there were 6.4 million properties with negative equity - now there are 5.1 million.  A significant change.

by Calculated Risk on 1/08/2015 08:33:00 AM

The DOL reported:

In the week ending January 3, the advance figure for seasonally adjusted initial claims was 294,000, a decrease of 4,000 from the previous week's unrevised level of 298,000. The 4-week moving average was 290,500, a decrease of 250 from the previous week's unrevised average of 290,750.

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

The previous week was unrevised.

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 slightly to 290,500.

This was lower than the consensus forecast of 300,000, and the level suggests few layoffs.

by Calculated Risk on 1/07/2015 07:25:00 PM

Interesting from Jon Hilsenrath And Brian Blackstone at the WSJ: Fed Backs More Overseas Stimulus

Fed officials rarely comment on the decisions taken by foreign central banks and have generally played down risks to domestic growth emanating from abroad. Yet minutes of the Fed’s Dec. 16-17 policy meeting included several references to the urgency U.S. officials and market participants are placing on new policy actions to counteract slow growth outside the U.S.
...
The minutes showed Fed officials “regarded the international situation as an important source of downside risks to domestic real activity and employment.” They added that the risks were particularly serious “if foreign policy responses were insufficient.”

In another place in the Fed minutes, officials warned that financial markets had been “importantly influenced by concerns about prospects for foreign economic growth and by associated expectations of monetary policy actions in Europe and Japan.”

Thursday:
• At 8:30 AM ET, the initial weekly unemployment claims report will be released. The consensus is for claims to increase to 300 thousand from 298 thousand.

• Early, Trulia Price Rent Monitors for December. 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 3:00 PM, Consumer Credit for November from the Federal Reserve. The consensus is for credit to increase $15.0 billion.

by Calculated Risk on 1/07/2015 03:51:00 PM

Friday at 8:30 AM ET, the BLS will release the employment report for December. The consensus, according to Bloomberg, is for an increase of 245,000 non-farm payroll jobs in December (with a range of estimates between 202,000 and 305,000), and for the unemployment rate to decline to 5.7%.

The BLS reported 321,000 jobs added in November.

Here is a summary of recent data:

• The ADP employment report showed an increase of 241,000 private sector payroll jobs in November. This was above expectations of 223,000 private sector payroll jobs added. The ADP report hasn't been very useful in predicting the BLS report for any one month, but in general, this suggests employment growth slightly above expectations.

• The ISM manufacturing employment index increased in December to 56.8%. A historical correlation between the ISM manufacturing employment index and the BLS employment report for manufacturing, suggests that private sector BLS manufacturing payroll jobs increased about 18,000 in December. The ADP report indicated a 26,000 increase for manufacturing jobs in December.

The ISM non-manufacturing employment index decreased in December to 56.0%. A historical correlation (linear) between the ISM non-manufacturing employment index and the BLS employment report for non-manufacturing, suggests that private sector BLS non-manufacturing payroll jobs increased about 234,000 in December.

Combined, the ISM indexes suggests employment gains of 252,000.  This suggests growth slightly above expectations.

• Initial weekly unemployment claims averaged close to 291,000 in December, down from 299,000 in November. For the BLS reference week (includes the 12th of the month), initial claims were at 289,000; this was down from 292,000 during the reference week in November.

Generally this suggests about the same low level of layoffs in December as for the previous three months (employment gains averaged 278,000 per month for September, October and November).

• The final December Reuters / University of Michigan consumer sentiment index increased to 93.6 from the November reading of 88.8. This was the highest level in nearly eight years. Sentiment is frequently coincident with changes in the labor market, but there are other factors too - like sharply lower gasoline prices.

• On small business hiring: The small business index from Intuit showed a 30,000 increase in small business employment in December, the same strong level as in November.

• Trim Tabs reported that the U.S. economy added between 210,000 to 240,000 jobs in December. This is down sharply from their 306,000 estimate last month (that was pretty close). "TrimTabs’ employment estimates are based on analysis of daily income tax deposits to the U.S. Treasury from the paychecks of the 141 million U.S. workers subject to withholding"  December is more challenging for TrimTabs due to year end bonuses - so they provided a range this month.

• Conclusion: Below is a table showing several employment indicators and the initial BLS report (the first column is the revised employment). Two key points:

1) Unfortunately none of the indicators below is very good at predicting the initial BLS employment report.

2) In general it looks like this should be another 200+ month (based on ADP, ISM, unemployment claims, and small business hiring).

There is always some randomness to the employment report.  The consensus forecast is pretty strong, but I'll take the over again (above 245,000).

Employment Indicators (000s)
	BLS Revised	BLS Initial	ADP Initial	ISM	Weekly Claims Reference Week1	Intuit Small Business
Jan	144	113	175	236	329	10
Feb	222	175	139	-6	334	0
Mar	203	192	191	153	323	0
Apr	304	288	220	NA	320	25
May	229	217	179	130	327	35
Jun	267	288	281	NA	314	20
Jul	243	209	218	NA	303	15
Aug	203	142	204	285	299	0
Sep	271	248	213	NA	281	10
Oct	243	214	230	340	284	15
Nov		321	208	260	292	30
Dec		Friday	241	252	289	30
1Lower is better for Unemployment Claims

by Calculated Risk on 1/07/2015 02:00:00 PM

Participants expressed more concern about low inflation and the FOMC might wait on rate hikes until they are "reasonably confident that inflation will move back toward 2 percent over time".

From the Fed: Minutes of the Federal Open Market Committee, December 16-17, 2014. Excerpts:

Participants generally anticipated that inflation was likely to decline further in the near term, reflecting the reduction in oil prices and the effects of the rise in the foreign exchange value of the dollar on import prices. Most participants saw these influences as temporary and thus continued to expect inflation to move back gradually to the Committee's 2 percent longer-run objective as the labor market improved further in an environment of well-anchored inflation expectations. Survey-based measures of longer-term inflation expectations remained stable, although market-based measures of inflation compensation over the next five years, as well as over the five-year period beginning five years ahead, moved down further over the intermeeting period. Participants discussed various explanations for the decline in market-based measures, including a fall in expected future inflation, reductions in inflation risk premiums, and higher liquidity and other premiums that might be influencing the prices of Treasury Inflation-Protected Securities and inflation derivatives. Model-based decompositions of inflation compensation seemed to support the message from surveys that longer-term inflation expectations had remained stable, although it was observed that these results were sensitive to the assumptions underlying the particular models used. It was noted that even if the declines in inflation compensation reflected lower inflation risk premiums rather than a reduction in expected inflation, policymakers might still want to take them into account because such changes could reflect increased concerns on the part of investors about adverse outcomes in which low inflation was accompanied by weak economic activity. In the end, participants generally agreed that it would take more time and analysis to draw definitive conclusions regarding the recent behavior of inflation compensation.
...
With regard to inflation, a number of participants saw a risk that it could run persistently below their 2 percent objective, with some expressing concern that such an outcome could undermine the credibility of the Committee's commitment to that objective.
...
With lower energy prices and the stronger dollar likely to keep inflation below target for some time, it was noted that the Committee might begin normalization at a time when core inflation was near current levels, although in that circumstance participants would want to be reasonably confident that inflation will move back toward 2 percent over time. emphasis added