by Calculated Risk on 1/30/2015 02:31:00 PM

Freddie Mac reported that the Single-Family serious delinquency rate declined in December to 1.88%, down from 1.91% in November. Freddie's rate is down from 2.39% in December 2013, and the rate in December was the lowest level since December 2008. Freddie's serious delinquency rate peaked in February 2010 at 4.20%.

These are mortgage loans that are "three monthly payments or more past due or in foreclosure". 

Note: Fannie Mae will report their Single-Family Serious Delinquency rate for December next week.

Click on graph for larger image

Although the rate is generally declining, the "normal" serious delinquency rate is under 1%. 

The serious delinquency rate has fallen 0.51 percentage points over the last year - and the rate of improvement has slowed recently - but at that rate of improvement, the serious delinquency rate will not be below 1% until late 2016.

Note: Very few seriously delinquent loans cure with the owner making up back payments - most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. 

So even though distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales for 2+ more years (mostly in judicial foreclosure states).

by Calculated Risk on 1/30/2015 12:08:00 PM

There are legitimate concerns about a strong dollar, and weak economic activity overseas, impacting U.S. exports and GDP growth. However, overall, the Q4 GDP report was solid.

The key numbers are: 1) PCE increased at a 4.3% annual rate in Q4 (the two month method nails it again), and 2) private fixed investment increased at a 2.3% rate. The negatives were trade (subtracted 1.02 percentage point) and Federal government spending (subtracted 0.54 percentage points).

As usual, I like to focus on private fixed investment because that is the key to the business cycle.

The first graph shows the Year-over-year (YoY) change in real GDP, real PCE, and real fixed private investment.


Click on graph for larger image.

It appears the pace of growth for real GDP and PCE has been picking up a little. Real GDP was up 2.5% Q1 over Q1, and real PCE was up 2.8%. Both will show stronger growth next quarter (since Q1 2014 was so weak).

The dashed black line is the year-over-year change in private fixed investment. This slowed a little in Q4, but has been increasing solidly.

The graph below shows the contribution to GDP from residential investment, equipment and software, and nonresidential structures (3 quarter trailing average). This is important to follow because residential investment tends to lead the economy, equipment and software is generally coincident, and nonresidential structure investment trails the economy.

In the graph, red is residential, green is equipment and software, and blue is investment in non-residential structures. So the usual pattern - both into and out of recessions is - red, green, blue.

The dashed gray line is the contribution from the change in private inventories.

Note: This can't be used blindly.  Residential investment is so low as a percent of the economy that the small decline early last year was not  a concern.

Click on graph for larger image.

Residential investment (RI) increased at a 4.1% annual rate in Q4.  Equipment investment decreased at a 1.9% annual rate, and investment in non-residential structures increased at a 2.6% annual rate.   On a 3 quarter trailing average basis, RI is moving up (red), equipment is moving sideways (green), and nonresidential structures dipped a little (blue).

Note: Nonresidential investment in structures typically lags the recovery, however investment in energy and power provided a boost early in this recovery. 

I expect investment to be solid going forward (except for energy and power), and for the economy to grow at a solid pace in 2015.

by Calculated Risk on 1/30/2015 10:00:00 AM

Click on graph for larger image.

The final University of Michigan consumer sentiment index for January was at 98.1, down slightly from the preliminary estimate of 98.2, and up from 93.6 in December.

This was close to the consensus forecast of 98.2. Lower gasoline prices and a better labor market are probably the reasons for the recent increase.

by Calculated Risk on 1/30/2015 08:30:00 AM

From the BEA: Gross Domestic Product: Fourth Quarter and Annual 2014 (Advance Estimate)

Real gross domestic product -- the value of the production of goods and services in the United States, adjusted for price changes -- increased at an annual rate of 2.6 percent in the fourth quarter of 2014, according to the "advance" estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 5.0 percent.
...
The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, nonresidential fixed investment, state and local government spending, and residential fixed investment that were partly offset by a negative contribution from federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP growth in the fourth quarter primarily reflected an upturn in imports, a downturn in federal government spending, and decelerations in nonresidential fixed investment and in exports that were partly offset by an upturn in private inventory investment and an acceleration in PCE.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, decreased 0.3 percent in the fourth quarter, in contrast to an increase of 1.4 percent in the third. Excluding food and energy prices, the price index for gross domestic purchases increased 0.7 percent, compared with an increase of 1.6 percent.

The advance Q4 GDP report, with 2.6% annualized growth, was below expectations of a 3.2% increase.

Personal consumption expenditures (PCE) increased at a 4.3% annualized rate - a strong pace!

The key negatives were trade (subtracted 1.02 percentage point) and Federal government spending (subtracted 0.54 percentage points).

Click on graph for larger image.
The first graph shows residential investment as a percent of GDP.

Residential Investment as a percent of GDP has been increasing, but it still below the levels of previous recessions - and I expect RI to continue to increase for the next few years.

I'll break down Residential Investment into components after the GDP details are released this coming week. Note: Residential investment (RI) includes new single family structures, multifamily structures, home improvement, broker's commissions, and a few minor categories.

The second graph shows non-residential investment in structures, equipment and "intellectual property products".  Investment is trending up as a percent of GDP..

I'll add details for investment in offices, malls and hotels next week.

Overall this was a solid report with strong PCE and private domestic investment.

by Calculated Risk on 1/29/2015 07:31:00 PM

From the Atlanta Fed:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2014 was 3.5 percent on January 27, unchanged from January 21.

From Nomura:

Incoming data suggest that the economy grew at a slower pace in Q4 than the strong 5.0% growth in Q3. As such, we forecast that GDP increased at a still robust annualized rate of 3.4% in Q4. In particular, we expect final sales to grow by 3.4%, exceeding 3% for the fifth time in six quarters. Personal spending should make a significant positive contribution to growth in Q4. We expect inventory investment to make a negligible negative contribution.

The two month method for forecasting PCE (using October and November), suggests real PCE growth of 4.3% in Q4 (of course December could be disappointing). That would be the best quarter for real PCE growth since 2006.

Friday:
• At 8:30 AM ET, Gross Domestic Product, 4th quarter 2014 (advance estimate). The consensus is that real GDP increased 3.2% annualized in Q4.

• At 9:45 AM, Chicago Purchasing Managers Index for January. The consensus is for a reading of 57.7, down from 58.8 in December.

• At 10:00 AM, the University of Michigan's Consumer sentiment index (final for January). The consensus is for a reading of 98.2, unchanged from the preliminary reading of 98.2, and up from the December reading of 93.6.

by Calculated Risk on 1/29/2015 03:15:00 PM

The Case-Shiller house price indexes for November were released Tuesday. Zillow has started forecasting Case-Shiller a month early - now including the National Index - and I like to check the Zillow forecasts since they have been pretty close.

From Zillow: Expect Recent Trend of Sub-5% Annual Growth in Case-Shiller to Continue into 2015

The November S&P/Case-Shiller (SPCS) data released [Tuesday] showed a slight uptick in the pace of national home value appreciation in the housing market, with annual growth in the U.S. National Index rising to 4.7 percent, from 4.6 percent in October.

Despite the modestly faster pace of growth, annual appreciation in home values as measured by SPCS has been less than 5 percent for the past three months. We anticipate this trend to continue as annual growth in home prices slows to more normal levels between 3 percent and 5 percent. Zillow predicts the U.S. National Index to rise 4.5 percent on an annual basis in December.

The 10- and 20-City Indices saw annual growth rates decline in November; the 10-City index rose 4.2 percent and the 20-City Index rose 4.4 percent – down from rates of 4.4 percent and 4.5 percent, respectively, in October.

The non-seasonally adjusted (NSA) 20-City index fell 0.2 percent from October to November, and we expect it to decrease 0.4 percent in December from November. We expect the same monthly decline in the 10-City Composite Index next month, falling 0.4 percent from November to December (NSA).

All forecasts are shown in the table below. These forecasts are based on the November SPCS data release and the December 2014 Zillow Home Value Index (ZHVI), released Jan. 22. Officially, the SPCS Composite Home Price Indices for December will not be released until Tuesday, Feb. 24.

So the year-over-year change in the Case-Shiller index will probably slow in December.

Zillow Case-Shiller Forecast
	Case-Shiller Composite 10		Case-Shiller Composite 20		Case-Shiller National
	NSA	SA	NSA	SA	NSA	SA
November Actual YoY	4.2%	4.2%	4.3%	4.3%	4.7%	4.7%
December Forecast YoY	3.8%	3.8%	4.0%	4.0%	4.5%	4.5%
December Forecast MoM	-0.4%	0.2%	-0.4%	0.3%	0.0%	0.5%

by Calculated Risk on 1/29/2015 11:58:00 AM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for December 2014. In the past month, the indexes increased in 46 states and remained stable in four, for a one-month diffusion index of 94. Over the past three months, the indexes increased in 50 states, for a three-month diffusion index of 100.

Note: These are coincident indexes constructed from state employment data. An explanation from the Philly Fed:

The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic. The four state-level variables in each coincident index are nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

Click on graph for larger image.

This is a graph is of the number of states with one month increasing activity according to the Philly Fed. This graph includes states with minor increases (the Philly Fed lists as unchanged).

In December, 49 states had increasing activity (including minor increases). This measure has been moving up and down, and is in the normal range for a recovery.


Here is a map of the three month change in the Philly Fed state coincident indicators. This map was all red during the worst of the recession, and is all green again.

It seems likely that several oil producing states will turn red sometime in 2015 - possibly Texas, North Dakota, Alaska or Oklahoma.

by Calculated Risk on 1/29/2015 10:15:00 AM

The Census Bureau released the Residential Vacancies and Homeownership report for Q4 2014.

This report is frequently mentioned by analysts and the media to track the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey.

This survey might show the trend, but I wouldn't rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply or household formation, or rely on the homeownership rate, except as a guide to the trend.

Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate decreased to 64.0% in Q4, from 64.4% in Q3.

I'd put more weight on the decennial Census numbers - and given changing demographics, the homeownership rate is probably close to a bottom.

The HVS homeowner vacancy increased to 1.9% in Q4. 

Are these homes becoming rentals?

Once again - this probably shows the general trend, but I wouldn't rely on the absolute numbers.

The rental vacancy rate decreased in Q4 to 7.0% from 7.4% in Q3.

I think the Reis quarterly survey (large apartment owners only in selected cities) is a much better measure of the rental vacancy rate - and Reis reported that the rental vacancy rate increased slightly over the last few quarters - and might have bottomed.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey.

by Calculated Risk on 1/29/2015 10:03:00 AM

From the NAR: Pending Home Sales Stall in December

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 3.7 percent to 100.7 in December from a slightly downwardly revised 104.6 in November but is 6.1 percent above December 2013 (94.9). Despite last month’s decline (the largest since December 2013 at 5.8 percent), the index experienced its highest year-over-year gain since June 2013 (11.7 percent).
...
The PHSI in the Northeast experienced the largest decline, dropping 7.5 percent to 82.1 in December, but is still 6.3 percent above a year ago. In the Midwest the index decreased 2.8 percent to 97.1in December, but is 1.9 percent above December 2013.

Pending home sales in the South declined 2.6 percent to an index of 116.6 in December, but are 8.6 percent above last December. The index in the West fell 4.6 percent in December to 94.0, but is 6.3 percent above a year ago.

Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in January and February.

by Calculated Risk on 1/29/2015 08:34:00 AM

The DOL reported:

In the week ending January 24, the advance figure for seasonally adjusted initial claims was 265,000, a decrease of 43,000 from the previous week's revised level. This is the lowest level for initial claims since April 15, 2000 when it was 259,000. The previous week's level was revised up by 1,000 from 307,000 to 308,000. The 4-week moving average was 298,500, a decrease of 8,250 from the previous week's revised average. The previous week's average was revised up by 250 from 306,500 to 306,750.

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

The previous week was revised up to 308,000.

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 decreased to 298,500.

This was much lower than the consensus forecast of 300,000, and the low level of the 4-week average suggests few layoffs.