by Calculated Risk on 3/21/2016 10:11:00 AM

From the NAR: Existing-Home Sales Fizzle in February

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, dropped 7.1 percent to a seasonally adjusted annual rate of 5.08 million in February from 5.47 million in January. Despite last month's large decline, sales are still 2.2 percent higher than a year ago. ...

Total housing inventory at the end of February increased 3.3 percent to 1.88 million existing homes available for sale, but is still 1.1 percent lower than a year ago (1.90 million). Unsold inventory is at a 4.4-month supply at the current sales pace, up from 4.0 months in January.

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 (5.08 million SAAR) were 7.1% lower than last month, and were 2.2% above the February 2015 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory increased to 1.88 million in February from 1.82 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 1.1% year-over-year in February compared to February 2015.  

Months of supply was at 4.4 months in February.

This was well below consensus expectations of sales of 5.34 million. For existing home sales, a key number is inventory - and inventory is still low. I'll have more later ...

by Calculated Risk on 3/21/2016 08:36:00 AM

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

Led by declines in production-related indicators, the Chicago Fed National Activity Index (CFNAI) fell to –0.29 in February from +0.41 in January. All four broad categories of indicators that make up the index decreased from January, and three of the four categories made negative contributions to the index in February.

The index’s three-month moving average, CFNAI-MA3, edged up to –0.07 in February from –0.12 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 3/20/2016 08:05:00 PM

Note: I'd take the "under" on existing home sales tomorrow. Housing economist Tom Lawler is not always right on, but he is usually pretty close - and he expects the NAR to report February sales of 5.20 million SAAR, below the consensus forecast of 5.34 million SAAR. See this post for a review of Lawler's track record.

Weekend:
• Schedule for Week of March 20, 2016

Monday:
• At 8:30 AM ET, 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 5.34 million SAAR, down from 5.47 million in January. Housing economist Tom Lawler expects the NAR to report sales of 5.20 million SAAR for February.

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

Oil prices were up over the last week with WTI futures at $39.05 per barrel and Brent at $41.11 per barrel.  A year ago, WTI was at $46, and Brent was at $53 - so prices are down about 15% to 22% year-over-year, respectively.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $1.99 per gallon (down about $0.40 per gallon from a year ago).

by Calculated Risk on 3/20/2016 10:53:00 AM

Mortgage rates are still solidly below 4%.

From Matthew Graham at Mortgage News Daily: Mortgage Rates End Week at Lows

While we're not quite back to the lower rates seen earlier in the month, the average conventional 30yr fixed quote is still well below 4.0 percent, with the average lender at 3.75% on top tier scenarios.
emphasis added

Here is a table from Mortgage News Daily:

Home Loan Rates

View More Refinance Rates

by Calculated Risk on 3/19/2016 08:11:00 AM

The key reports this week are the third estimate of Q4 GDP, and February Existing and New Home sales.

----- Monday, March 21st -----
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 5.34 million SAAR, down from 5.47 million in January.

Economist Tom Lawler expects the NAR to report sales of 5.20 million SAAR for February.

----- Tuesday, March 22nd -----
9:00 AM: FHFA House Price Index for January 2016. This was originally a GSE only repeat sales, however there is also an expanded index.  The consensus is for a 0.6% month-to-month increase for this index.

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

----- Wednesday, March 23rd -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications 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 increase in sales to 510 thousand Seasonally Adjusted Annual Rate (SAAR) in February from 494 thousand in January.

During the day: The AIA's Architecture Billings Index for February (a leading indicator for commercial real estate).

----- Thursday, March 24th -----
8:30 AM: The initial weekly unemployment claims report will be released.  The consensus is for 268 thousand initial claims, up from 265 thousand the previous week.

8:30 AM: Durable Goods Orders for February from the Census Bureau. The consensus is for a 3.0% decrease in durable goods orders.

11:00 AM: Kansas City Fed Survey of Manufacturing Activity for March.

----- Friday, March 25th -----
8:30 AM ET: Gross Domestic Product, 4th quarter 2015 (Third estimate). The consensus is that real GDP increased 1.0% annualized in Q4, unrevised from the second estimate.

10:00 AM ET: Regional and State Employment and Unemployment (Monthly) for February 2016 from BLS.

by Calculated Risk on 3/18/2016 02:45:00 PM

A short note: Over the years, I've made several significant economic calls. For example, I predicted a recession in 2007, a recovery in 2009 (link is first in a series of posts), the top for housing prices in early 2006 and the bottom for housing prices in early 2012. I do not have a crystal ball, and I've missed some calls - but by watching the data closely, I've been pretty lucky overall.

Sometimes people ask me when I'll make another call.  I don't know; I'm very data dependent!

But I was wondering if this counts?  Back in December I wrote The Endless Parade of Recession Calls. I concluded:

Looking at the economic data, the odds of a recession in 2016 are very low (extremely unlikely in my view). Someday I'll make another recession call, but I'm not even on recession watch now.

So far that looks correct.  And I'm still not on recession watch.

by Calculated Risk on 3/18/2016 11:59:00 AM

The Fed's Household Debt Service ratio through Q4 2015 was released Mar 14th: 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 increased slightly in Q4, and has been moving sideways and is near a record low.  Note: The financial obligation ratio (FOR) increased slightly in Q4 and is also near a record low  (not shown)

The DSR for mortgages (blue) are near the low for the last 35 years.  This ratio increased rapidly during the housing bubble, and continued to increase until 2007. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined significantly.

The consumer debt DSR (yellow) has been increasing for the last three years.

This data suggests aggregate household cash flow has improved.

by Calculated Risk on 3/18/2016 10:04:00 AM

The preliminary University of Michigan consumer sentiment index for March was at 90.0, down from 91.7 in February:

Consumer confidence eased in early March due to increased concerns about prospects for the economy as well as the expectation that gas prices would inch upward during the year ahead. All of the decline during the past year has been in the Expectations Index, which was due to a weakening outlook for the pace of growth in the national economy. While consumers do not anticipate a recession, they no longer expect the economy to outperform the 2.4% rate of economic growth recorded in the past two years. In contrast, personal financial expectations remained strong in early March, comparable to the favorable levels recorded nearly a decade ago. Overall, it would appear that consumers have accommodated slower economic growth as well as rising gas prices without an accompanying rise in uncertainty about their own personal financial situation. The most important element supporting consumers' optimism is their conviction that the slower pace of economic growth will not have an appreciable impact on maintaining the jobless rate at about its current low level. The data are still consistent with a 2.7% rate of growth in personal consumption expenditures during 2016.
emphasis added

This was below the consensus forecast of 92.2.


Click on graph for larger image.

by Calculated Risk on 3/17/2016 03:55:00 PM

From housing economist Tom Lawler:

Based on publicly-available local 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 5.2 million in February, down 4.9% from January’s preliminary pace and up 4.6% from last January’s seasonally adjusted pace. On an unadjusted basis I project that the year-over-year % increase in home sales in February was pretty close to January’s YOY gain. However, while this January had one fewer business day than last January, this February (in a Leap Year) had one more business day than last February. As a result, while the YOY increase in seasonally adjusted sales in January (11.5%) was well above the YOY gain in unadjusted sales (7.5%), the opposite should be the case in February.

On the inventory front, local realtor/MLS reports suggest that the NAR’s estimate of the number of existing homes for sale at the end of February should be about 1.84 million, up 1.1% from January and down 3.2% from a year earlier.

Finally, local realtor/MLS data suggest that the NAR’s estimate of the median existing single-family home sales price in February should be about 5.8% higher than last February.

CR Note: The NAR is scheduled to release February existing home sales on Monday, March 21st. The early consensus is for sales of 5.30 million SAAR.

by Calculated Risk on 3/17/2016 12:01:00 PM

This is from Metrostudy chief economist Brad Hunter:

When I forecast housing starts, I find that it is vital to check on the supply of vacant developed lots in each market. Some markets have severe shortages, and others have excess, at least in certain submarkets. One metric that is informative is the pace of “lot deliveries,” meaning the number of lots that reach the stage of development just before the builder begins pouring the foundation (the “start”).

There has been a fascinating dynamic lately, with regard to lot deliveries. Nationwide, the pace of lot deliveries has stayed far below the pace of housing starts through this entire recovery. Lot deliveries increased by 37% over the past two years, while starts (lot absorption) rose by 23%. Even with that increase, the lot production pace has yet to catch up with the pace of home building in many markets. In the nation as a whole, lot production has just caught up with the pace of new home construction.

In some markets, we now are seeing an important new trend: the lines have crossed. The pace of lot development began leading the pace of starts in 2015 in some markets. When that happens, we know that an increased level of home construction is planned. We can then confidently forecast a higher level of housing starts in those areas.

Click on graph for larger image.


There are several markets are showing this strongly-bullish indicator. I see it most pronounced in Austin, Southern California, Indianapolis, Las Vegas (yes, Las Vegas), Naples/Ft. Myers, and Houston.

In Austin, the pace of lot development has gone from being half of the pace of starts to 36% HIGHER than the pace of starts. In Naples/Ft. Myers, the pace of lot development has gone 20% above starts. This is a relatively small market, but it is growing rapidly.

In Southern California, we see a different pattern: lot development shot up above the pace of starts back in 2014, and then fell back to the same level as starts by the end of 2015. In 2013, the lines crossed, and lot development started to rise in Southern California, exceeding the rate of absorption of lots by an ever-larger margin until the fourth quarter of 2014, when lot deliveries were running 42% higher than starts. After that peak, lot development slowed, and by the end of 2015, was running lower than the pace of new home construction.

We saw the same pattern in Dallas and Jacksonville, with lot development surging in 2014, and then falling throughout 2015.

We will be watching these markets with great interest over the next few months to see if this trend accelerates, or if it more markets join the ranks of those with recent slowdowns. Homebuilder executives are telling me that they are finally starting to say “no” to land deals, now that land and lot prices are back to, or above, the price levels of the previous peak in many markets. This new discipline in land buying could feed into a lower pace of lot development, but then again, increased price resistance by builders may force land sellers to get more reasonable with prices and terms, and that would allow lot development and starts to rise further (and at a nice clip) for the next several years.

CR Note: This was from Metrostudy chief economist Brad Hunter.