by Calculated Risk on 9/16/2015 07:04:00 AM

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

Mortgage applications decreased 7.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 11, 2015. The week’s results included an adjustment for the Labor Day holiday. ...

The Refinance Index decreased 9 percent from the previous week. The seasonally adjusted Purchase Index decreased 4 percent from one week earlier. The unadjusted Purchase Index decreased 16 percent compared with the previous week and was 5 percent higher than the same week one year ago. The Labor Day holiday shifted from the first week in September last year to the second week this year.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.09 percent from 4.10 percent, with points increasing to 0.42 from 0.39 (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.

Refinance activity remains low.

2014 was the lowest year for refinance activity since year 2000, and refinance activity will probably stay low for the rest of 2015 (after the increase earlier this year).


The second graph shows the MBA mortgage purchase index.  

According to the MBA, the unadjusted purchase index is 5% higher than a year ago - but that is probably too low due to the shift in timing of Labor Day.  Last week, the MBA reported the index was up 41% YoY.   Next week will be a better YoY comparison.

by Calculated Risk on 9/15/2015 08:50:00 PM

From Tim Duy at Bloomberg: Why the Fed Is Likely to Stand Pat This Week

Bottom Line: The Federal Reserve is looking for a time with minimal downside risks to raise interest rates. The wavering global economy is likely creating enough downside risk to defer that first hike to a later meeting. But the Fed still wants to begin normalizing policy, and it will signal that it remains committed to a rate hike this year. Regardless of the global situation and the inflation picture, I suspect it will feel increasingly compelled to do just that as the unemployment rate drifts below 5 percent.

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

• At 8:30 AM, the Consumer Price Index for August from the BLS. The consensus is for a 0.1% decrease in CPI, and a 0.2% increase in core CPI.

• At 10:00 AM, the September NAHB homebuilder survey. The consensus is for a reading of 61, unchanged from August. Any number above 50 indicates that more builders view sales conditions as good than poor.

by Calculated Risk on 9/15/2015 04:27:00 PM

From housing economist Tom Lawler:

Based on publicly-released realtor/MLS reports from across the country released through today, I project that US existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of about 5.54 million, down 0.9% from July’s preliminary pace (which I believe should be revised upward; see below), but up 10.8% from last July’s seasonally adjusted pace.

Local realtor/MLS reports also suggest that the NAR’s estimate of the inventory of existing home sales at the end of August should be down about 0.9% from July, and down about 4.7% from last August. Finally, local realtor/MLS data would suggest that the NAR’s estimate of the median existing SF home sales price in August was up by about from last August.

Post-Mortem on July’s Existing Home Sales Report: NAR’s Estimate of Sales in the South Seems Low

Last month the NAR estimated that US existing home sales ran at a seasonally adjusted annual rate of 5.59 million in July – far above the “consensus” forecast but just slightly below my forecast based on realtor/MLS reports available prior to the EHS report. Based on more complete realtor/MLS reports for July, it appears to me that the NAR’s estimate for existing home sales in the South for July was too low. The NAR estimated that existing home sales on an unadjusted basis totaled 220,000 in the South in July, up 10% from the previous July’s pace. State and local realtor/MLS reports for that region, however, strongly suggest that the YOY sales gain in the South was several percentage points higher. To be sure, state realtor reports cover a significantly wider geographic area than does the NAR’s sample used to generate regional sales estimates (the NAR sample mainly includes just metro areas), and it is possible that the NAR’s estimate won’t be revised upward even though sales in the region clearly saw faster YOY growth than the NAR’s estimates suggest. But my “best guess” is that the NAR’s existing home sales estimate for July should be revised upward.

CR Note: The NAR release for August is scheduled for Monday, Sept. 21, 2015.

by Calculated Risk on 9/15/2015 03:23:00 PM

First a quote that is probably correct ...

"I suspect way more economists than traders think the Fed will go this week. While way more traders than economists think the Fed should." Joseph Weisenthal

This is an important point from Greg Ip at the WSJ: For the Fed, Markets May Be Flashing a Wait Sign

The Federal Reserve owes no allegiance to the stock market. Its responsibility is to the actual economy—employment, output, inflation.

But sometimes, markets send the Fed important signals about the actual economy, and this may be one of those times.

As Fed policy makers ponder Wednesday and Thursday whether and when to raise rates, an important factor in their decision will be whether to wait to see if the recent turmoil in stocks, bonds and currencies points to unanticipated troubles in the global economy.

The Fed isn't directly concerned about market volatility. However they would be concerned if the volatility signals economic weakness.

by Calculated Risk on 9/15/2015 10:58:00 AM

From CoreLogic: CoreLogic Reports 759,000 US Properties Regained Equity in the Second Quarter of 2015

CoreLogic ... today released a new analysis showing 759,000 properties regained equity in the second quarter of 2015, bringing the total number of mortgaged residential properties with equity at the end of Q2 2015 to approximately 45.9 million, or 91 percent of all mortgaged properties. Nationwide, borrower equity increased year over year by $691 billion in Q2 2015. The total number of mortgaged residential properties with negative equity is now at 4.4 million, or 8.7 percent of all mortgaged properties. This compares to 5.1 million homes, or 10.2 percent, that had negative equity in Q1 2015, a quarter-over-quarter decrease of 1.5 percentage points. Compared with 5.4 million homes, or 10.9 percent, reported for Q2 2014, the number of underwater homes has decreased year over year by 1.1 million, or 19.4 percent.

... Of the more than 50 million residential properties with a mortgage, approximately 9 million, or 17.8 percent, have less than 20 percent equity (referred to as “under-equitied”), and 1.1 million, or 2.3 percent, 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. ...
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 residential properties in negative equity at 20.6 percent, followed by Florida (18.5 percent), Arizona (15.4 percent), Rhode Island (13.8 percent) and Illinois (13.1 percent). Combined, these five states accounted for 31.7 percent of negative equity in the U.S."

Note: The share of negative equity is still very high in Nevada and Florida, but down from a year ago.

The second graph shows the distribution of home equity in Q2 2015 compared to Q1 2015. In Q2, 3.3% of residential properties have 25% or more negative equity, down from 3.8% in Q1 2015.

In Q2 2014, there were 5.4 million properties with negative equity - now there are 4.4 million.  A significant change.

by Calculated Risk on 9/15/2015 09:31:00 AM

From the Fed: Industrial production and Capacity Utilization

Industrial production decreased 0.4 percent in August after increasing 0.9 percent in July. The increase in July is now estimated to be greater than originally reported last month, largely as a result of upward revisions for mining and utilities. Manufacturing output fell 0.5 percent in August primarily because of a large drop in motor vehicles and parts that reversed a substantial portion of its jump in July; production elsewhere in manufacturing was unchanged. The index for mining fell 0.6 percent in August, while the index for utilities rose 0.6 percent. At 107.1 percent of its 2012 average, total industrial production in August was 0.9 percent above its year-earlier level. Capacity utilization for the industrial sector fell 0.4 percentage point in August to 77.6 percent, a rate that is 2.5 percentage points below its long-run (1972–2014) average.
emphasis added

Click on graph for larger image.

This graph shows Capacity Utilization. This series is up 10.7 percentage points from the record low set in June 2009 (the series starts in 1967).

Capacity utilization at 77.6% is 2.5% below the average from 1972 to 2012 and below the pre-recession level of 80.8% in December 2007.

Note: y-axis doesn't start at zero to better show the change.

The second graph shows industrial production since 1967.

Industrial production decreased 0.4% in August to 107.1. This is 22.8% above the recession low, and 1.8% above the pre-recession peak.

This was below expectations of a 0.2% decrease.  Much of the recent weakness has been due to lower oil prices - a weak report.

by Calculated Risk on 9/15/2015 08:38:00 AM

On a monthly basis, retail sales were up 0.2% from July to August (seasonally adjusted), and sales were up 2.2% from August 2014.

From the Census Bureau report:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $447.7 billion, an increase of 0.2 percent from the previous month, and 2.2 percent above August 2014. ... The June 2015 to July 2015 percent change was revised from +0.6 percent to +0.7 percent.

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales ex-gasoline increased 0.4%.

The second graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993.

Retail and Food service sales ex-gasoline increased by 4.2% on a YoY basis (2.2% for all retail sales including gasoline).

The increase in August was below the consensus expectations of a 0.3% increase, however sales in July were revised up. An OK report.

by Calculated Risk on 9/14/2015 06:17:00 PM

From Reuters: Credibility, 'gradual' approach at stake as Fed weighs rate rise

A broad group of economists polled by Reuters last week bet on a September move by a slim margin; economists at banks that deal directly with the Fed, known as primary dealers, picked December as more likely; and traders of short term interest rate futures were giving a rate rise this week only a one-in-four chance.
...
As recently as July, Yellen, who took over the Fed's reins in early 2014, appeared to make the case for a September move, telling a congressional hearing that waiting longer could mean the need to hike more rapidly later. "An advantage to beginning a little bit earlier is that we might have a more gradual path," she said.
emphasis added

This will be an interesting announcement!

Tuesday:
• At 8:30 AM ET, Retail sales for August will be released. The consensus is for retail sales to increase 0.3% in August, and to increase 0.2% ex-autos.

• Also at 8:30 AM, NY Fed Empire State Manufacturing Survey for September. The consensus is for a reading of -0.5, up from -14.9.

• At 9:15 AM, the Fed will release Industrial Production and Capacity Utilization for August. The consensus is for a 0.2% decrease in Industrial Production, and for Capacity Utilization to decrease to 77.8%.

• At 10:00 AM, Manufacturing and Trade: Inventories and Sales (business inventories) report for July. The consensus is for a 0.1% increase in inventories

by Calculated Risk on 9/14/2015 04:31:00 PM

Some random thoughts ... Based on the data, I noted that a rate hike this week is possible, even likely.  However the consensus of economists is no rate hike at the FOMC meeting this week.

Economists at Goldman Sachs, Deutsche Bank, J.P. Morgan, Nomura, and many others see December as more likely than September (some see the Fed waiting until 2016). Economics professor Tim Duy also thinks a September rate hike is unlikely.   Duy and Goldman Sachs chief economist Jan Hatzius have probably been as accurate as anyone in forecasting Fed actions - and neither expects a rate hike this week.

The arguments against a rate hike are low inflation, low inflation expectations, market based financial tightening (stronger dollar, wider credit spreads), global economic weaknesses, recent stock market volatility, slack in the labor market, and asymmetrical risks (hiking too soon poses much larger risks than waiting too long).

Those arguing the FOMC will probably raise rates this week point to "some further improvement" in the labor market since June, and that the forces holding down inflation are dissipating.  The revisions to the FOMC projections will be mostly supportive of a rate hike - and it wasn't long ago that FOMC members were hinting they'd hike rates in September if the economy evolved as expected.

In a WSJ article yesterday, Harriet Torry and Jon Hilsenrath pointed out that every central bank that has raised rates over the last seven years had had to reverse course. See: Lesson for Fed: Higher Interest Rates Haven’t Been Sticking. Of course that will be true for the FOMC meetings in October and December too!

A rate hike this week still seems possible to me (just focusing on the data), but it seems every research piece I read says "no".

by Calculated Risk on 9/14/2015 02:18:00 PM

Another update ... during the recession, I wrote about the troubles in Las Vegas and included a chart of visitor and convention attendance: Lost Vegas.

Since then Las Vegas visitor traffic recovered to a new record high in 2014.

We only have data through July 2015, but visitor traffic is 2% above the record 2014 pace so far.

However convention attendance is only returning slowly. Here is the data from the Las Vegas Convention and Visitors Authority.  

Click on graph for larger image.

The blue bars are annual visitor traffic (left scale), and the red line is convention attendance (right scale). 

Through July, visitor traffic in 2015 is running 2.0% above 2014.

Convention traffic is up 0.6% from last year, and is still way below the pre-recession peak.  In general, the gamblers are back - and the conventions are slowly returning.

It seemed like there were many housing related conventions during the housing bubble, so it may be some time before convention attendance hits a new high.