by Calculated Risk on 12/15/2015 07:52:00 PM

From the WSJ on the Nuts and Bolts:

The Fed has signaled that the details will be announced in an “implementation note” alongside the usual policy statement, and officials will watch closely to make sure those tools work as expected. “If adjustments to policy tools or administered rates subsequently proved necessary to implement an unchanged policy stance, the implementation note could be revised without altering the [Fed's] policy statement,” according to the central bank’s June meeting minutes.

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 ET, Housing Starts for November. Total housing starts decreased to 1.060 million (SAAR) in October. Single family starts decreased to 722 thousand SAAR in October. The consensus for 1.140 million, up from October.

• At 9:15 AM, the Fed will release Industrial Production and Capacity Utilization for November. The consensus is for a 0.2% decrease in Industrial Production, and for Capacity Utilization to decrease to 77.4%.

• During the day, the AIA's Architecture Billings Index for November (a leading indicator for commercial real estate).

• At 2:00 PM, the FOMC Meeting Announcement. The FOMC is expected to raise the Fed Funds rate at this meeting.

• Also at 2:00 PM, the FOMC Forecasts. This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

• At 2:30 PM, Fed Chair Janet Yellen holds a press briefing following the FOMC announcement.

by Calculated Risk on 12/15/2015 03:48:00 PM

From housing economist Tom Lawler:

Based on publicly-available local realtor/MLS reports released across the country through today, I project that existing home sales as estimated by the National Association of Realtors ran at a seasonally adjusted annual rate of 4.97 million in November, down 7.3% from October’s preliminary estimate and up just 0.4% from last November’s seasonally adjusted pace. Compared to last November unadjusted sales were either flat or down in quite a few (though by no means all) markets across the country, which seems surprising since last November’s sales face fell well below expectations. Overall I estimate that unadjusted existing home sales last month were up by about 2.4% from last November’s pace. (There was one more business day this November compared to last November, so the YOY % change in seasonally adjusted sales should be lower than that for unadjusted sales).

It was not directly clear what led to the sharp slide in seasonally adjusted national home sales last month. Some realtor groups suggested that the October implementation of the new “TRID” rule in early October may have delayed home closings last month, though others suggested that probably this factor wasn’t a “big deal.” And while in a few markets – notably Houston and a few others with exposure to the oil industry – sharp declines in home sales reflected a weakening housing market – that wasn’t apparent in most markets.

It is slightly interesting to note that the monthly % change in existing home sales for each of the last four November’s has been unusually large, as shown in the table below.

Monthly % Change in Existing Home Sales (SAAR)
	Nov. 2012	Nov. 2013	Nov. 2014	Nov. 2015**
Preliminary	5.9%	-4.3%	-6.1%	-7.3%
First Revision	4.8%	-5.9%	-6.3%
Latest*	3.5%	-4.0%	-4.1%
*includes seasonal factor revisions, done once a year **LEHC estimate

On the inventory front, my “best guess” is that the NAR’s estimate of the inventory of existing homes for sale at the end of November will be 1.99 million, down 7.0% from October and down 4.3% from a year earlier. In many markets inventories are down much more sharply from a year earlier, though Houston – with listings up by more than 20% from a year ago – is a big exception.

Finally, local realtor/MLS data suggests that the national US median existing SF home sales price last month was up by about 5.9% from last November.

by Calculated Risk on 12/15/2015 03:08:00 PM

The NY Fed manufacturing survey indicated contraction for the fifth consecutive month in the New York region. However the outlook has improved.

From the NY Fed: Empire State Manufacturing Survey

The December 2015 Empire State Manufacturing Survey indicates that business activity declined for a fifth consecutive month for New York manufacturers. However, the pace of decline slowed somewhat: the headline general business conditions index, though still negative, moved up six points to -4.6. New orders continued to drop, but shipments increased for the first time since the summer. ...
...
Labor market conditions deteriorated noticeably: the index for number of employees, negative for a fourth consecutive month, fell nine points to -16.2, and the average workweek index plunged thirteen points to -27.3, its lowest level since early 2009.

Indexes for the six-month outlook increased markedly this month, suggesting more widespread optimism about future business conditions. The index for future business conditions jumped eighteen points to 38.5, and the indexes for future new orders and future shipments also rose sharply. Labor market conditions were expected to improve, with the index for expected number of employees little changed at 15.2 and the index for expected workweek rising to 10.1.
emphasis added

by Calculated Risk on 12/15/2015 11:42:00 AM

The Cleveland Fed released the median CPI and the trimmed-mean CPI this morning:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.1% annualized rate) in November. The 16% trimmed-mean Consumer Price Index rose 0.1% (1.4% annualized rate) during the month. The median CPI and 16% trimmed-mean CPI are measures of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics' (BLS) monthly CPI report.

Earlier today, the BLS reported that the seasonally adjusted CPI for all urban consumers was unchanged (0.3% annualized rate) in November. The CPI less food and energy rose 0.2% (2.2% annualized rate) on a seasonally adjusted basis.

Note: The Cleveland Fed has the median CPI details for November here. Motor fuel was down 26% annualized in November.

Click on graph for larger image.

This graph shows the year-over-year change for these four key measures of inflation. On a year-over-year basis, the median CPI rose 2.5%, the trimmed-mean CPI rose 1.9%, and the CPI less food and energy also rose 2.0%. Core PCE is for October and increased 1.3% year-over-year.

On a monthly basis, median CPI was at 2.1% annualized, trimmed-mean CPI was at 1.4% annualized, and core CPI was at 2.2% annualized.

On a year-over-year basis, two of these measures suggest inflation remains below the Fed's target of 2% (core CPI as at 2% and median CPI is above 2%).

Using these measures, inflation has been moving up and is closer to the Fed's target.

by Calculated Risk on 12/15/2015 10:04:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 61 in December, down from 62 in November. Any number above 50 indicates that more builders view sales conditions as good than poor.

From the NAHB: Builder Confidence Edges Down One Point in December

Builder confidence in the market for newly constructed single-family homes remained relatively flat in December, dropping one point to 61 on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

“Overall, builders are optimistic about the housing market, although they are reporting concerns with the high price of lots and labor,” said NAHB Chairman Tom Woods, a home builder from Blue Springs, Mo.

“For the past seven months, builder confidence levels have averaged in the low 60s, which is in line with a gradual, consistent recovery,” said NAHB Chief Economist David Crowe. “With job creation, economic growth and growing household formations, we anticipate the housing market to continue to pick up traction as we head into 2016.”
...
All three HMI components posted modest losses in December. The index measuring sales expectations in the next six months fell two points to 67, the component gauging current sales conditions decreased one point to 66, and the index charting buyer traffic dropped two points to 46.

Looking at the three-month moving averages for regional HMI scores, the West increased three points to 76 while the Northeast rose a single point to 50. Meanwhile the Midwest dropped two points to 58 and the South fell one point to 64.
emphasis added

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

This was below the consensus forecast of 63, but still a strong reading.

by Calculated Risk on 12/15/2015 08:58:00 AM

From CoreLogic: CoreLogic Reports 256,000 US Properties Regained Equity in the Third Quarter of 2015

CoreLogic ... today released a new analysis showing 256,000 properties regained equity in the third quarter of 2015, bringing the total number of mortgaged residential properties with equity at the end of Q3 2015 to approximately 46.3 million, or 92.0 percent of all homes with an outstanding mortgage. Nationwide, borrower equity increased year over year by $741 billion in Q3 2015.

The total number of mortgaged residential properties with negative equity stood at 4.1 million, or 8.1 percent, in Q3 2015. That was down 4.7 percent quarter over quarter from 4.3 million homes, or 8.7 percent, compared with Q2 2015 and down 20.7 percent year over year from 5.2 million homes, or 10.4 percent, compared with Q3 2014. ...

For the homes in negative equity status, the national aggregate value of negative equity was $301 billion at the end of Q3 2015, declining approximately $8.1 billion from $309.1 billion in Q2 2015, a decrease of 2.6 percent. On a year-over-year basis, the value of negative equity declined overall from $341 billion in Q3 2014, representing a decrease of 11.8 percent in 12 months.

Of the more than 50 million residential properties with a mortgage, approximately 8.9 million, or 17.6 percent, have less than 20 percent equity (referred to as “under-equitied”) and 1.1 million, or 2.2 percent, have less than 5 percent equity (referred to as near-negative equity). Borrowers who are “under-equitied” may have a 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.

“Home price growth continued to lift borrower equity positions and increase the number of borrowers with sufficient equity to participate in the mortgage market," said Frank Nothaft, chief economist for CoreLogic. "In Q3 2015 there were 37.5 million borrowers with at least 20 percent equity, up 7 percent from 35 million in Q3 2014. In the last three years, borrowers with at least 20 percent equity have increased by 11 million, a substantial uptick that is driving rapid growth in home equity originations.”
emphasis added

On states:

"Nevada had the highest percentage of mortgaged residential properties in negative equity at 19.0 percent, followed by Florida (17.8 percent), Arizona (14.6 percent), Rhode Island (12.3 percent) and Maryland (12.1 percent). Combined, these five states account for 29.3 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.

Click on graph for larger image.

This graph shows the distribution of home equity in Q3 2015 compared to Q2 2015. In Q3, 3.0% of residential properties have 25% or more negative equity, down from 3.2% in Q2 2015.

For reference, three years ago, in Q3 2012, 9.6% of residential properties had 25% or more negative equity.

A year ago, in Q3 2014, there were 5.2 million properties with negative equity - now there are 4.1 million.  A significant change.

by Calculated Risk on 12/15/2015 08:35:00 AM

From the BLS:

The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in November on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 0.5 percent before seasonal adjustment.

The indexes for energy and food declined in November, offsetting an increase in the index for all items less food and energy and resulting in the seasonally adjusted all items index being unchanged. The energy index fell 1.3 percent, with all of the major component indexes declining except electricity. ...

The index for all items less food and energy rose 0.2 percent in November, the same increase as in September and October. ... The index for all items less food and energy rose 2.0 percent, its largest 12-month increase since the 12 months ending May 2014.
emphasis added

I'll post a graph later today after the Cleveland Fed releases the median and trimmed-mean CPI. This was at the consensus forecast of no change for CPI, and also at the forecast of a 0.2% increase in core CPI.

by Calculated Risk on 12/14/2015 09:25:00 PM

From the WSJ: Junk Bonds Resume Sharp Selloff

The U.S. junk-bond rout deepened Monday, with the bonds of dozens of low-rated companies falling anew and the shares of some large fund-management firms tumbling as well.

The declines reflected gathering concerns about risky companies’ access to financing, traders’ capacity to sell bonds without causing prices to fall, and ripple effects from the closure of a junk-bond mutual fund.

CR Note: It is called "junk" for a reason! A large portion of the concern is related to debt of energy companies.

Tuesday:
• At 8:30 AM ET, the Consumer Price Index for November from the BLS. The consensus is for no changed in CPI, and a 0.2% increase in core CPI.

• Also at 8:30 AM, the NY Fed Empire State Manufacturing Survey for December. The consensus is for a reading of -7.0, up from -10.7.

• At 10:00 AM, the December NAHB homebuilder survey. The consensus is for a reading of 63, up from 62 in November. Any number above 50 indicates that more builders view sales conditions as good than poor.

by Calculated Risk on 12/14/2015 02:41:00 PM

Here is an update on hotel occupancy from HotelNewsNow.com: STR: US results for week ending 5 December

The U.S. hotel industry recorded positive results in two of the three key performance measurements during the week of 29 November through 5 December 2015, according to data from STR, Inc.

In year-over-year measurements, the industry’s occupancy decreased 0.4% to 57.0%. However, average daily rate for the week was up 1.8% to US$116.51, and revenue per available room increased 1.5% to US$66.37.
emphasis added

The following graph shows the seasonal pattern for the hotel occupancy rate using the four week average.  Hotels are currently in the weakest part of the year; December and January.

The red line is for 2015, dashed orange is 2014, blue is the median, and black is for 2009 - the worst year since the Great Depression for hotels.  Purple is for 2000.

For 2015, the 4-week average of the occupancy rate is above 2000 (best year for hotels), and 2015 will be the best year ever for hotels.

Occupancy Rate Year-to-date:
1) 2015 66.9%
2) 2000 66.1%
3) 2014 64.8%

Data Source: Smith Travel Research, Courtesy of HotelNewsNow.com

by Calculated Risk on 12/14/2015 11:59:00 AM

A few excerpts from a piece by Michelle Meyer at Merrill Lynch: Home sweet home

We expect continued improvement in homebuilding and sales in 2016 and 2017, but still far from a V-shaped trajectory. Here are our baseline forecasts:

• Housing starts to average 1.275 million in 2016 and 1.4 million in 2017 on the way to a return to the historical average of 1.5 million by the end of 2017.

[CR NOTE: For reference, housing starts will probably be just over 1.1 million in 2015].

• Existing home sales to increase 5% in 2016 and 3% in 2017. We look for more robust growth in new home sales with a gain of 10% and about 14% over the next two years, respectively.

[CR Note: New Home sales will probably be just over 500 thousand in 2015]

• Home price appreciation should slow with prices up only 1.8% in 2016. The forecast for 2017 becomes more controversial as our baseline forecast is for a decline of 1.5%, as our model looks for home prices to converge to income.

[CR Note: A decline in nominal prices seems unlikely in 2017. However a decline in real prices (nominal price increases less than inflation) is possible].

When considering the forecasts for the next two years, we have to ask two critical questions: what is a “normal” rate of activity, and, after years of below-normal activity, could the sector overshoot?

In our view, a reasonable estimate of “normal” is the pre-crisis average of about 1.5 million. The math is simple: household formation of 1.2 million + demolitions of 300K + some number of second home purchases. There is a risk that household formation is on a slightly slower pace given persistently high rates of doubling up among young adults.

Starting in the early 2000s, and accelerating post crisis, there is a rising share of “grown-up” children who live with their parents. While this is partly due to the Great Recession and slow recovery, there could also be some secular changes related to delayed marriage. This could imply a somewhat lower equilibrium pace of housing starts.

That said, in the medium term, the risk is that we overshoot this new-normal level given pent-up household formation. Although we are skeptical about the quality of the data, the recent statistics from the Housing Vacancy Survey show a surge in household formation, implying formation of about 1.5 million this year. While the data will probably be revised lower, there is an improving trend. Provided the overall economy continues to heal as we are expecting, with 2.5% growth in 2016 and an unemployment rate of 4.5% by year-end, we will see further growth in households.

Indeed, there is a risk that housing demand continues to overshoot supply, as we believe it has this year. Homebuilders have been complaining that a shortage of labor has been a major impediment to production. According to the NAHB, 52% of homebuilders report labor shortages, back to 2000 levels and up notably from 21% just three years ago. The challenge is that many skilled workers left the construction industry after the housing bubble burst and have not come back This could continue to extend delivery times and slow production.