by Calculated Risk on 3/23/2015 04:52:00 PM

From housing economist Tom Lawler:

Below is a table showing net home orders for the quarter ended February 28 of 2015 compared to the comparable quarter of the previous two years.

At least for these three builders, the beginning of this year’s “spring” (a misnomer) home selling season looks materially better than last year’s disappointing season.

Net Home Orders, Quarter Ending February 28				YOY % Change
	2015	2014	2013	2015	2014
Lennar Corp.	5,287	4,465	4,055	18.4%	10.1%
KB Home	2,189	1,765	1,671	24.0%	5.6%
Hovnanian Ent.	1,514	1,402	1,581	8.0%	-11.3%
Total	8,990	7,632	7,307	17.8%	4.4%

by Calculated Risk on 3/23/2015 03:55:00 PM

From the Philly Fed:

The Federal Reserve Bank of Philadelphia has released the coincident indexes for the 50 states for January 2015. In the past month, the indexes increased in 46 states, decreased in two, and remained stable in two, for a one-month diffusion index of 88. Over the past three months, the indexes increased in 48 states and decreased in two, for a three-month diffusion index of 92.

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 January, 47 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 almost 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 3/23/2015 12:28:00 PM

Inventory is still very low (down 0.5% year-over-year in February). This will be important to watch over the next month at the start of the Spring buying season.

Note: As usually happens, housing economist Tom Lawler's estimate was closer than the consensus to the NAR reported sales rate.

Also, the NAR reported total sales were up 4.7% from February 2014, however normal equity sales were up even more, and distressed sales down sharply.  From the NAR (from a survey that is far from perfect):

Distressed sales – foreclosures and short sales – were 11 percent of sales in February, unchanged for the third consecutive month and down from 16 percent a year ago. Eight percent of February sales were foreclosures and 3 percent were short sales. Foreclosures sold for an average discount of 17 percent below market value in February (15 percent in January), while short sales were discounted 15 percent (12 percent in January).

Last year in February the NAR reported that 16% of sales were distressed sales.

A rough estimate: Sales in February 2014 were reported at 4.66 million SAAR with 16% distressed.  That gives 746 thousand distressed (annual rate), and 3.91 million equity / non-distressed.  In February 2015, sales were 4.88 million SAAR, with 11% distressed.  That gives 537 thousand distressed - a decline of about 28% from February 2014 - and 4.34 million equity.  Although this survey isn't perfect, this suggests distressed sales were down sharply - and normal sales up around 10%.

Important: If total existing sales decline a little, or move side-ways - due to fewer distressed sales- that is a positive sign for real estate.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Click on graph for larger image.

Sales NSA in February (red column) were slightly higher than last year (NSA), and below sales in February 2013.

Earlier:
• Existing Home Sales in February: 4.88 million SAAR, Inventory down slightly Year-over-year

by Calculated Risk on 3/23/2015 10:05:00 AM

The NAR reports: Existing-Home Sales Slightly Improve in February, Price Growth Gains Steam

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, rose 1.2 percent to a seasonally adjusted annual rate of 4.88 million in February from 4.82 million in January. Sales are 4.7 percent higher than a year ago and above year-over-year totals for the fifth consecutive month. ...

Total housing inventory at the end of February increased 1.6 percent to 1.89 million existing homes available for sale, but remains 0.5 percent below a year ago (1.90 million). For the second straight month, unsold inventory is at a 4.6-month supply at the current sales pace.

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in February (4.88 million SAAR) were 1.2% higher than last month, and were 4.7% above the February 2014 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 1.89 million in February from 1.86 million in January.   Headline inventory is not seasonally adjusted, and inventory usually decreases to the seasonal lows in December and January, and peaks in mid-to-late summer.

The third graph shows the year-over-year (YoY) change in reported existing home inventory and months-of-supply. Since inventory is not seasonally adjusted, it really helps to look at the YoY change. Note: Months-of-supply is based on the seasonally adjusted sales and not seasonally adjusted inventory.

Inventory decreased 0.5% year-over-year in February compared to February 2014.  

Months of supply was at 4.6 months in February.

This was slightly below expectations of sales of 4.94 million (Right at economist Tom Lawler's forecast of 4.87 million).  For existing home sales, a key number is inventory - and inventory is still low.    I'll have more later ...

by Calculated Risk on 3/23/2015 09:06:00 AM

The Chicago Fed released the national activity index (a composite index of other indicators): Index shows economic growth slightly below average in February

The Chicago Fed National Activity Index (CFNAI) edged lower to –0.11 in February from –0.10 in January. Two of the four broad categories of indicators that make up the index decreased from January, and two of the four categories made negative contributions to the index in February.

The index’s three-month moving average, CFNAI-MA3, declined to –0.08 in February from +0.26 in January. February’s CFNAI-MA3 suggests that growth in national economic activity was slightly below its historical trend. The economic growth reflected in this level of the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.
emphasis added

This graph shows the Chicago Fed National Activity Index (three month moving average) since 1967.

Click on graph for larger image.

This suggests economic activity was slightly below the historical trend in February (using the three-month average).

According to the Chicago Fed:

What is the National Activity Index? The index is a weighted average of 85 indicators of national economic activity drawn from four broad categories of data: 1) production and income; 2) employment, unemployment, and hours; 3) personal consumption and housing; and 4) sales, orders, and inventories.

A zero value for the index indicates that the national economy is expanding at its historical trend rate of growth; negative values indicate below-average growth; and positive values indicate above-average growth.

by Calculated Risk on 3/23/2015 07:01:00 AM

According to Black Knight's First Look report for February, the percent of loans delinquent decreased 3.7% in February compared to January, and declined 10% year-over-year.

The percent of loans in the foreclosure process declined 2% in February and were down about 29% over the last year.

Black Knight reported the U.S. mortgage delinquency rate (loans 30 or more days past due, but not in foreclosure) was 5.36% in February, down from 5.56% in January.  The normal rate for delinquencies is around 4.5% to 5%.  This is the lowest level of delinquencies since August 2007.

The percent of loans in the foreclosure process declined in February to 1.58%.  This was the lowest level of foreclosure inventory since December 2007.

The number of delinquent properties, but not in foreclosure, is down 453,000 properties year-over-year, and the number of properties in the foreclosure process is down 315,000 properties year-over-year.

Black Knight will release the complete mortgage monitor for February in early April.

Black Knight: Percent Loans Delinquent and in Foreclosure Process
	Feb 2015	Jan 2015	Feb 2014	Feb 2013
Delinquent	5.36%	5.56%	5.97%	6.80%
In Foreclosure	1.58%	1.61%	2.22%	3.38%
Number of properties:
Number of properties that are 30 or more, and less than 90 days past due, but not in foreclosure:	1,646,000	1,701,000	1,749,000	1,927,000
Number of properties that are 90 or more days delinquent, but not in foreclosure:	1,067,000	1,112,000	1,242,000	1,483,000
Number of properties in foreclosure pre-sale inventory:	800,000	815,000	1,115,000	1,694,000
Total Properties	3,512,000	3,628,000	4,106,000	5,104,000

by Calculated Risk on 3/22/2015 07:59:00 PM

From Nick Timiraos at the WSJ: Oil Price Drop Hurts Spending on Business Investments

Prospects for an uptick in business investment this year are facing a major drag: The collapse in oil prices is spurring significant cutbacks for the energy-production industry, which had been a standout in an otherwise lackluster U.S. expansion.

Business capital spending increased 6% last year because of gains from a broad base of U.S. industries. The drag from energy this year could cut that growth rate in half in 2015, according to economists at Goldman Sachs.

Overall the decline in oil prices will be a positive for the US economy, but there are clearly certain sectors that are taking a hit.

Monday:
• 8:30 AM ET, the Chicago Fed National Activity Index for February. This is a composite index of other data.

• At 10:00 AM, Existing Home Sales for February from the National Association of Realtors (NAR). The consensus is for sales of 4.94 million on seasonally adjusted annual rate (SAAR) basis. Sales in January were at a 4.82 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 4.87 million SAAR.

• At 12:20 PM, Speech by Fed Vice Chairman Stanley Fischer, Monetary Policy Lessons and the Way Ahead, At the Economic Club of New York, New York, N.Y

Weekend:
• Schedule for Week of March 22, 2015

From CNBC: Pre-Market Data and Bloomberg futures: currently S&P futures are up 3 and DOW futures are up 30 (fair value).

Oil prices were up slightly over the last week with WTI futures at $46.16 per barrel and Brent at $54.81 per barrel.  A year ago, WTI was at $100, and Brent was at $107 - so prices are down 50%+ year-over-year.

Below is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are up to $2.42 per gallon (down more than $1.00 per gallon from a year ago).   Prices in California are now declining following a refinery fire in February and a strike that is now over.

If you click on "show crude oil prices", the graph displays oil prices for WTI, not Brent; gasoline prices in most of the U.S. are impacted more by Brent prices.

Orange County Historical Gas Price Charts Provided by GasBuddy.com

by Calculated Risk on 3/22/2015 10:38:00 AM

The Fed's Household Debt Service ratio through Q4 2014 was released Friday: Household Debt Service and Financial Obligations Ratios. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations.

These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households. Note: The Fed changed the release in Q3 2013.

The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income.

The DSR is divided into two parts. The Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income. The Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The Mortgage DSR and the Consumer DSR sum to the DSR.

This data has limited value in terms of absolute numbers, but is useful in looking at trends. Here is a discussion from the Fed:

The limitations of current sources of data make the calculation of the ratio especially difficult. The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States. Such a data set is not available, and thus the calculated series is only an approximation of the debt service ratio faced by households. Nonetheless, this approximation is useful to the extent that, by using the same method and data series over time, it generates a time series that captures the important changes in the household debt service burden.

Click on graph for larger image.

The graph shows the Total Debt Service Ratio (DSR), and the DSR for mortgages (blue) and consumer debt (yellow).

The overall Debt Service Ratio decreased in Q4, and is near the record low set in Q4 2012.  Note: The financial obligation ratio (FOR) is also near a record low  (not shown)

The DSR for mortgages (blue) declined further in Q4. This ratio increased rapidly during the housing bubble, and continued to increase until 2007. With lower interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined significantly.

This data suggests household cash flow is in much better shape now.

by Calculated Risk on 3/21/2015 11:58:00 AM

The key economic reports this week are February new home sales on Tuesday, existing home sales on Monday, the Consumer Price Index on Tuesday, and the third estimate of Q4 GDP on Friday.

Fed Chair Janet Yellen will speak on Monetary Policy on Friday.

----- Monday, March 23rd -----
8:30 AM ET: Chicago Fed National Activity Index for February. This is a composite index of other data.

10:00 AM: Existing Home Sales for February from the National Association of Realtors (NAR).

The consensus is for sales of 4.94 million on seasonally adjusted annual rate (SAAR) basis. Sales in January were at a 4.82 million SAAR. Economist Tom Lawler estimates the NAR will report sales of 4.87 million SAAR.

A key will be the reported year-over-year increase in inventory of homes for sale.

12:20 PM, Speech by Fed Vice Chairman Stanley Fischer, Monetary Policy Lessons and the Way Ahead, At the Economic Club of New York, New York, N.Y

----- Tuesday, March 24th -----
8:30 AM: Consumer Price Index for February. The consensus is for a 0.2% increase in CPI, and for core CPI to increase 0.1%.

9:00 AM: FHFA House Price Index for January 2015. This was originally a GSE only repeat sales, however there is also an expanded index.

10:00 AM: New Home Sales for February from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the January sales rate.

The consensus is for a decrease in sales to 475 thousand Seasonally Adjusted Annual Rate (SAAR) in February from 481 thousand in January.

10:00 AM: Richmond Fed Survey of Manufacturing Activity for March.

----- Wednesday, March 25th -----
7:00 AM: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Durable Goods Orders for February from the Census Bureau. The consensus is for a 0.5% increase in durable goods orders.

----- Thursday, March 26th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for claims to increase to 293 thousand from 291 thousand.

11:00 AM: the Kansas City Fed manufacturing survey for March.

----- Friday, March 27th -----
8:30 AM: Gross Domestic Product, 4th quarter 2014 (third estimate). The consensus is that real GDP increased 2.4% annualized in Q4, up from the second estimate of 2.2%.

10:00 AM: University of Michigan's Consumer sentiment index (final for March). The consensus is for a reading of 91.8, up from the preliminary reading of 91.2, but down from the February reading of 95.4.

10:00 AM: Regional and State Employment and Unemployment (Monthly), February 2015

3:45 PM: Speech, Fed Chair Janet Yellen, Monetary Policy, At the Federal Reserve Bank of San Francisco Conference: The New Normal for Monetary Policy, San Francisco, Calif

by Calculated Risk on 3/21/2015 09:05:00 AM

A few excerpts from a research piece by Goldman Sachs economist Kris Dawsey: The Path to the Exit

The March FOMC statement and “dot plot” were more dovish than the market expected. The probability of a September hike looks much higher than a June hike, with a risk that the first hike could be pushed even later. Despite this week’s events, the Fed is busily planning how it will lift off from the zero lower bound when the time comes  ...

We think that the most likely outcome for the first hike is an increase in the target range to 25 to 50 basis points (from 0 to 25 basis points currently). Although not likely, there is an outside chance that the Fed could decide to start with a “mini” hike. Once the first hike occurs, the Fed probably has sufficient tools to ensure that the effective fed funds rate trades within—but likely in the bottom half of—the target range most of the time.

Despite the Fed’s guidance that interest paid on excess reserves (IOER) will be the primary tool for firming rates, we think that the Committee will significantly increase the cap on the overnight RRP (O/N RRP) facility around the time of the first hike as an insurance policy. ... In our view, flexibility with regard to tactics and a process of “learning by doing” will probably be key features of the early part of the exit.

Sometime after the first hike the Fed will allow its balance sheet to begin shrinking, resulting in a gradual increase in the term premium. ... Our forecast for the start of portfolio runoff is 2016 Q1, with risk skewed toward a later date, and we think that the initial step will probably be a switch to a policy of partial reinvestment. Although the Fed has stated that asset sales are not part of its normalization plan at this time, it is possible to imagine scenarios which could push the Fed in this direction.