by Calculated Risk on 6/10/2015 10:01:00 AM

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

FNC released their April 2015 index data today.  FNC reported that their Residential Price Index™ (RPI) indicates that U.S. residential property values increased 1.2% from March to April (Composite 100 index, not seasonally adjusted). 

The 10 city MSA increased 1.7% in April, and the 20-MSA and 30-MSA RPIs both increased 1.6% and 1.4% respectively. 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 higher in April than in March, with the 100-MSA composite up 5.3% compared to April 2014.

The index is still down 17.5% from the peak in 2006 (not inflation adjusted).

Click on graph for larger image.

This graph shows the year-over-year change based on the FNC index (four composites) through April 2015. The FNC indexes are hedonic price indexes using a blend of sold homes and real-time appraisals.

Most of the other indexes are also showing the year-over-year change mostly steady at around 5% for the last several months.

Note: The March Case-Shiller index will be released on Tuesday, June 30th.

by Calculated Risk on 6/10/2015 07:00:00 AM

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Survey

Mortgage applications increased 8.4 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 5, 2015. The previous week’s results included an adjustment for the Memorial Day holiday. ...

The Refinance Index increased 7 percent from the previous week. The seasonally adjusted Purchase Index increased 10 percent from one week earlier. The unadjusted Purchase Index increased 20 percent compared with the previous week and was 15 percent higher than the same week one year ago.

“Mortgage application volume rebounded strongly in the week following the Memorial Day holiday, indicating that the holiday had a larger impact on business activity than originally assumed. Comparing volume over the past two weeks, purchase activity is up over 6 percent, while refinance activity is down 5 percent. Strong job gains in May and initial signs of wage growth are supporting the purchase market,” said Mike Fratantoni, MBA’s Chief Economist.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.17 percent, its highest level since November 2014, from 4.02 percent, with points increasing to 0.38 from 0.33 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index.

The increase this week was probably related to the holiday adjustment.  With higher rates, refinance activity should decline.

2014 was the lowest year for refinance activity since year 2000.


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is 15% higher than a year ago.

by Calculated Risk on 6/09/2015 07:30:00 PM

Mortgage rates are still down year-over-year, but it is getting close.

From Matthew Graham at Mortgage News Daily: Mortgage Rates Right Back to 2015 Highs

Mortgage rates bounced back up to the highest levels of 2015 today. ...

Most lenders remain at 4.125% for conventional 30yr fixed quotes on top tier scenarios, but an increasing number of them moved up to 4.25% today.

Wednesday:
• At 7:00 AM ET, the Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

• At 10:00 AM, the Q1 Quarterly Services Report from the Census Bureau.

• At 2:00 PM, the Monthly Treasury Budget Statement for May.

by Calculated Risk on 6/09/2015 04:37:00 PM

From CoreLogic: Number of Loans in Foreclosure Lowest Since November 2007

CoreLogic reported today that the national foreclosure inventory fell by 24.9 percent year over year in April 2015 to approximately 521,000 homes, or 1.4 percent of all homes with a mortgage. This marks 42 months of consecutive year-over-year declines ... Also in April 2015, the 12-month sum of completed foreclosures continued to decline, dropping by 19.8 percent to 538,000 since April 2014. The seriously delinquent inventory fell to 1.4 million loans, a 22.1-percent year-over-year decline.

Click on graph for larger image.

The report today was for April. Here is a map from the March report that shows foreclosure inventory by state.

Some key "bubble" states - like Arizona and California - have mostly recovered.

Several judicial foreclosure states - like New Jersey and Florida - are still struggling.

From CoreLogic today:

Judicial foreclosure states, on average, continued to have higher foreclosure rates than non-judicial states, averaging 2.3 percent and 0.7 percent, respectively, in April 2015. The foreclosure rate for judicial states peaked in February 2012 at 5.4 percent, while non-judicial states experienced peak foreclosure rates in January 2011. As of April 2015, 42 percent of outstanding mortgages were in judicial states, but 70 percent of total loans in foreclosure were in those states.

by Calculated Risk on 6/09/2015 12:31:00 PM

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 steady home sales and prices with tight housing supply

According to GLVAR, the total number of existing local homes, condominiums and townhomes sold in May was 3,363, down from 3,450 one year ago. Compared to May 2014, 2.6 percent fewer homes and 2.2 percent fewer condos and townhomes sold this May.
...
GLVAR has been reporting fewer distressed sales and more traditional home sales, where lenders are not controlling the transaction. In May, 7.3 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 down from 7.9 percent one year ago. Another 8.0 percent of May sales were bank-owned, down 9.1 percent from one year ago.
...
The total number of single-family homes listed for sale on GLVAR’s Multiple Listing Service in May was 13,569, down 0.5 percent from one year ago. GLVAR tracked a total of 3,470 condos, high-rise condos and townhomes listed for sale on its MLS in May, down 4.8 percent from one year ago.

By the end of May, GLVAR reported 7,133 single-family homes listed without any sort of offer. That’s up 7.8 percent from one year ago. For condos and townhomes, the 2,268 properties listed without offers in May represented a 0.4 percent increase from one year ago.
emphasis added

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

1) Overall sales were down 2.5% year-over-year.

2) Conventional (equity, not distressed) sales were unchanged year-over-year.  In May 2014, 83.0% of all sales were conventional equity.  In May 2015, 84.7% were standard equity sales.   Note: In May 2013 (two years ago), only 57.9% were equity!  There was a significant change from 2013 to 2014.

3) The percent of cash sales has declined year-over-year from 40.2% in May 2014 to 29.1% in May 2015. (investor buying appears to be declining).

4) Non-contingent inventory is up 7.8% 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  - but still ongoing.

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%
Jan-15	12.9%
Feb-15	15.8%
Mar-15	12.2%
Apr-15	7.6%
May-15	7.8%

by Calculated Risk on 6/09/2015 10:07:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings rose to 5.4 million on the last business day of April, the highest since the series began in December 2000, the U.S. Bureau of Labor Statistics reported today. The number of hires was little changed at 5.0 million in April and the number of separations was little changed at 4.9 million. ...
...
Quits are generally voluntary separations initiated by the employee. Therefore, the quits rate can serve as a measure of workers’ willingness or ability to leave jobs. ... There were 2.7 million quits in April, little changed from March.
emphasis added

The following graph shows job openings (yellow line), hires (dark blue), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

This series started in December 2000.

Note: The difference between JOLTS hires and separations is similar to the CES (payroll survey) net jobs headline numbers. This report is for April, the most recent employment report was for May.

Click on graph for larger image.


Note that hires (dark blue) and total separations (red and light blue columns stacked) are pretty close each month. This is a measure of labor market turnover.  When the blue line is above the two stacked columns, the economy is adding net jobs - when it is below the columns, the economy is losing jobs.

Jobs openings increased in April to 5.376 million from 5.109 million in March.

The number of job openings (yellow) are up 22% year-over-year compared to April 2014.

Quits are up 11% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

This is another solid report.  It is a good sign that job openings are over 5 million - at an all time high, and that quits are increasing solidly year-over-year.

by Calculated Risk on 6/09/2015 09:07:00 AM

From the National Federation of Independent Business (NFIB): Small business optimism level is finally back to a normal level

The Index of Small Business Optimism increased 1.4 points to 98.3 ... May is the best reading since the 100.4 December reading but nothing to write home about. The 42 year average is 98.0 ... Eight of the 10 Index components posted improvements.
...
Small businesses posted another decent month of job creation in May, a string of 5 solid months of job creation. On balance, owners added a net 0.13 workers per firm over the past few months.... Twenty-nine percent of all owners reported job openings they could not fill in the current period, up 2 points, revisiting the February reading, and the highest reading since April 2006.
emphasis added

Click on graph for larger image.

This graph shows the small business optimism index since 1986.

The index increased to 98.3 in May from 96.9 in April.

by Calculated Risk on 6/08/2015 08:35:00 PM

The endless Greek tragedy continues, from the WSJ: Greece, Creditors Discuss Extending Bailout in Bid to Break Deadlock

The eurozone’s portion of Greece’s €245 billion ($276 billion) rescue program runs out at the end of June, raising questions over how Athens will pay off its debt beyond this month and remain in Europe’s currency union. ...

A nine-month extension would help carry Athens over its current funding gap. It would also give both Prime Minister Alexis Tsipras and his country’s creditors—the eurozone and the International Monetary Fund—more time to chart a new path for Greece’s economy. But it leaves open questions over whether the government would, indeed, be able to finance itself beyond March, or need even more support.

To help keep Greece solvent over the proposed bailout extension, Greece would receive financing from some €10.9 billion in aid money that had originally been set aside to prop up Greek banks, three people familiar with the negotiations said.

Tuesday:
• At 9:00 AM ET, the NFIB Small Business Optimism Index for May

• At 10:00 AM, the Job Openings and Labor Turnover Survey for April from the BLS. Jobs openings decreased in March to 4.994 million from 5.144 million in February. The number of job openings were up 19% year-over-year in March, and Quits were up 14% year-over-year.

by Calculated Risk on 6/08/2015 04:21:00 PM

For fun ... tomorrow is the tenth anniversary of then Fed Chairman Alan Greenspan's "Froth" testimony on June 9, 2005:

Although a "bubble" in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels.

The housing market in the United States is quite heterogeneous, and it does not have the capacity to move excesses easily from one area to another. Instead, we have a collection of only loosely connected local markets. Thus, while investors can arbitrage the price of a commodity such as aluminum between Portland, Maine, and Portland, Oregon, they cannot do that with home prices because they cannot move the houses. As a consequence, unlike the behavior of commodity prices, which varies little from place to place, the behavior of home prices varies widely across the nation.

Speculation in homes is largely local, especially for owner-occupied residences. For homeowners to realize accumulated capital gains on a residence--a precondition of a speculative market--they must move. Another formidable barrier to the emergence of speculative activity in housing markets is that home sales involve significant commissions and closing costs, which average in the neighborhood of 10 percent of the sales price. Where homeowner sales predominate, speculative turnover of homes is difficult.

But in recent years, the pace of turnover of existing homes has quickened. It appears that a substantial part of the acceleration in turnover reflects the purchase of second homes--either for investment or vacation purposes. Transactions in second homes, of course, are not restrained by the same forces that restrict the purchases or sales of primary residences--an individual can sell without having to move. This suggests that speculative activity may have had a greater role in generating the recent price increases than it has customarily had in the past.

The apparent froth in housing markets may have spilled over into mortgage markets. The dramatic increase in the prevalence of interest-only loans, as well as the introduction of other relatively exotic forms of adjustable-rate mortgages, are developments of particular concern. To be sure, these financing vehicles have their appropriate uses. But to the extent that some households may be employing these instruments to purchase a home that would otherwise be unaffordable, their use is beginning to add to the pressures in the marketplace.

The U.S. economy has weathered such episodes before without experiencing significant declines in the national average level of home prices. In part, this is explained by an underlying uptrend in home prices. Because of the degree of customization of homes, it is difficult to achieve significant productivity gains in residential building despite the ongoing technological advances in other areas of our economy. As a result, productivity gains in residential construction have lagged behind the average productivity increases in the United States for many decades. This shortfall has been one of the reasons that house prices have consistently outpaced the general price level for many decades.

Although we certainly cannot rule out home price declines, especially in some local markets, these declines, were they to occur, likely would not have substantial macroeconomic implications.

Yes. Maybe a little "froth" in housing, but no "substantial macroeconomic implications"! Oops ...

by Calculated Risk on 6/08/2015 12:08:00 PM

Every month, with the release of the employment report, we see commentary that says "the labor force participation rate is at or near a 30 year low". Duh! That was expected based on demographics and is not worth reading (Note: the participation rate might move sideways for a couple of years, but is projected to decline for another decade or more).

There is usually some discussion about the decline in the prime working age participation rate - and this is more interesting. However a careful analysis shows that the participation rate for prime workers is now close to the expected rate.

A year ago I wrote: 41-Year-Olds and the Labor Force Participation Rate and I discussed a few key points:

1) Analyzing and forecasting the labor force participation requires looking at a number of factors. Everyone is aware that there is a large cohort has moved into the 50 to 70 age group, and that that has pushing down the overall participation rate. Another large cohort has been moving into the 16 to 24 year old age group - and many in this cohort are staying in school (a long term trend that has accelerated recently) - and that is another key factor in the decline in the overall participation rate.

2) But there are other long term trends. One of these trends is for a decline in the participation rate for prime working age men (25 to 54 years old).

3) There has been some discussion that the decline in prime working age workers is due to "weakness of the labor market", however this decline was happening long before the Great Recession. For some reasons, see: Possible Reasons for the Decline in Prime-Working Age Men Labor Force Participation and on demographics from researchers at the Atlanta Fed: "Reasons for the Decline in Prime-Age Labor Force Participation"

Here is a look at the trend for 40 to 44 year old men (BLS data, only available Not Seasonally Adjusted since 1976). I choose men only to simplify.

Click on graph for larger image.

This graph shows the 40 to 44 year old men participation rate since 1976 (note the scale doesn't start at zero to better show the change).

There is a clear downward trend, and a researcher looking at this trend in the year 2000 might have predicted the 40 to 44 year old men participation rate would about the level as today (see trend line).

Clearly there are other factors than "economic weakness" causing this downward trend.   I listed some reasons a few months ago, and new research from Pew Research suggests stay-at-home dads is one of the reasons: Growing Number of Dads Home with the Kids

Just looking at this graph, I don't think there are many "missing 41-Year-Old" men that will be returning to the labor force.

The second graph shows the trends for each prime working age men 5-year age group.

Note: This is a rolling 12 month average to remove noise (data is NSA), and the scale doesn't start at zero to show the change.

Clearly there is a downward trend for all 5 year age groups. When arguing about how many workers are "missing", we need to take these long term trends into account.

The third graph shows the same data but with the full scale (0% to 100%).  The trend is still apparent, but the decline has been gradual.

The trend is more complicated for women.

Here is a look at the participation rate of women in the prime working age groups over time.

This graph shows the trends for each prime working age women 5-year age group.

Note: This is a rolling 12 month average to remove noise (data is NSA), and the scale doesn't start at zero to show the change.

For women, the participation rate increased significantly until the late 90s, and then started declining slowly.  This is a more complicated story than for men, and that is why I used prime working age men above to show the gradual downward decline in participation that has been happening for decades (and is not just recent economic weakness).

This graph shows the same data for women but with the full scale (0% to 100%).  The upward participation until the late 80s is very clear, and the decline since then has been gradual.

The bottom line is that the participation rate was declining for prime working age workers before the recession, there are several reasons for this decline (not just recent "economic weakness") and many estimates of "missing workers" are probably way too high.