by Calculated Risk on 4/05/2016 08:01:00 PM

Wednesday:
• Early: Reis Q1 2016 Mall Survey of rents and vacancy rates.

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

• At 2:00 PM, The Fed will release the FOMC Minutes for the Meeting of March 15-16, 2016

A few excerpts from a note by Goldman Sachs economists Hui Shan and Daan Struyven: Household Formation Close to Normal

Looking across various measures, we find that household formation has improved over the past few years and likely exceeded 1 million in 2015—an encouraging rebound from the subdued pace in years prior.

We continue to forecast an annual household formation rate of 1.2 million over the next few years. This forecast, coupled with the decline in the vacancy rate, supports our constructive view on homebuilding. Overall, we see continued evidence that housing will remain a tailwind to the economy.

by Calculated Risk on 4/05/2016 03:41:00 PM

The March ISM Non-manufacturing index was at 54.5%, up from 53.4% in February. The employment index increased in March to 50.3%, up from 49.7% in February. Note: Above 50 indicates expansion, below 50 contraction.

From the Institute for Supply Management:March 2016 Non-Manufacturing ISM Report On Business®

Economic activity in the non-manufacturing sector grew in March for the 74th consecutive month, say the nation's purchasing and supply executives in the latest Non-Manufacturing ISM® Report On Business®.

The report was issued today by Anthony Nieves, CPSM, C.P.M., CFPM, chair of the Institute for Supply Management® (ISM®) Non-Manufacturing Business Survey Committee. "The NMI® registered 54.5 percent in March, 1.1 percentage points higher than the February reading of 53.4 percent. This represents continued growth in the non-manufacturing sector at a slightly faster rate. The Non-Manufacturing Business Activity Index increased to 59.8 percent, 2 percentage points higher than the February reading of 57.8 percent, reflecting growth for the 80th consecutive month, with a faster rate in March. The New Orders Index registered 56.7 percent, 1.2 percentage points higher than the reading of 55.5 percent in February. The Employment Index increased 0.6 percentage point to 50.3 percent from the February reading of 49.7 percent and indicates growth after a month of contraction. The Prices Index increased 3.6 percentage points from the February reading of 45.5 percent to 49.1 percent, indicating prices decreased in March for the fifth time in the last seven months. According to the NMI®, 12 non-manufacturing industries reported growth in March. The majority of respondents’ comments indicate that business conditions are mostly positive and that the economy is stable and will continue on a course of slow, steady growth."
emphasis added

Click on graph for larger image.

This graph shows the ISM non-manufacturing index (started in January 2008) and the ISM non-manufacturing employment diffusion index.

This was above the consensus forecast of 54.0, and suggests faster expansion in March than in February.

by Calculated Risk on 4/05/2016 12:41:00 PM

Reis reported that the apartment vacancy rate increased in Q1 2016 to 4.5%, up from 4.4% in Q4, and up from 4.3% in Q1 2015. The vacancy rate peaked at 8.0% at the end of 2009, and bottomed at 4.2% in 2014 and early 2015.

A few comments from Reis Senior Economist and Director of Research Ryan Severino:

If there were any doubts about rising vacancy in the apartment market they should now be put to rest. The national vacancy rate increased once again during the first quarter, marking three consecutive quarters of national vacancy rate increases. This is the first time this has occurred since the fourth quarter of 2009 when the apartment market was still struggling due to the fallout from the Great Recession. This is the beginning of an upward trend in vacancy that should persist for at least the next five years. New construction continues to exceed net absorption by a wider margin over time which will cause vacancy to increase in the majority (if not all) of the coming quarters. While the apartment market should still remain tight, there is clearly not a bottomless pool of demand that absorbs all of the units that are being delivered to the market.

Vacancy once again increased by 10 basis points to 4.5% during the first quarter with construction exceeding net absorption. Demand and supply are now clearly out of balance, a dynamic that should persist for the foreseeable future. If anything, there will be greater upward pressure exerted on the national vacancy rate because construction is likely to exceed demand by an increasingly wider amount over time. During the first quarter construction exceed demand by 10,931 units. Although this difference is narrower than the previous quarter, it remains significant. With construction set to increase faster than net absorption this difference should continue to widen in the coming quarters.
...
Asking and effective rents grew by 0.4% and 0.5% respectively during the first quarter. This is a noticeable decline relative to strength in rental growth that occurred during the last few quarters. Although seasonality plays some role in this, the rising vacancy rate due to increasing levels of new construction is likely amplifying those seasonal impacts. Nonetheless, rent growth should bounce back during the warmer middle quarters of this year when demand for apartments is typically stronger. However it is noteworthy that these were the weakest quarterly rent growth figures since the fourth quarter of 2011 when the market was not as tight with the national vacancy rate roughly 80 basis points above where it was during the first quarter of 2016.

Over the last 12 months, asking and effective rents both grew by 4.5%. This is roughly in line with what occurred during calendar year 2015 and is still the strongest over a 12-month period since 2007 before the recession. Even with rent growth likely to rebound in the coming quarters, the relatively weak first-quarter reading could cause rent growth during 2016 to be below that of 2015.
emphasis added

Click on graph for larger image.

This graph shows the apartment vacancy rate starting in 1980. (Annual rate before 1999, quarterly starting in 1999). Note: Reis is just for large cities.

The vacancy rate had been mostly moving sideways for the last few years.  Now that completions are catching up with starts, the vacancy rate has started to increase.

Apartment vacancy data courtesy of Reis.

by Calculated Risk on 4/05/2016 10:08:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings was little changed at 5.4 million on the last business day of February, the U.S. Bureau of Labor Statistics reported today. Hires increased to 5.4 million while separations were little changed at 5.1 million. Within separations, the quits rate was 2.1 percent, and the layoffs and discharges rate was 1.2 percent. ...
...
The number of quits was little changed in February at 3.0 million. The quits rate was 2.1 percent.
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 February, the most recent employment report was for March.

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 decreased in February to 5.445 million from 5.604 million in January.

The number of job openings (yellow) are up 6% year-over-year compared to February 2015.

Quits are up 9% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

This is another solid report, and job openings are just below the record high set in July 2015.

by Calculated Risk on 4/05/2016 09:02:00 AM

Notes: This CoreLogic House Price Index report is for February. The recent Case-Shiller index release was for January. The CoreLogic HPI is a three month weighted average and is not seasonally adjusted (NSA).

From CoreLogic: CoreLogic US Home Price Report Shows Home Prices Up 6.8 Percent Year Over Year in February 2016

Home prices nationwide, including distressed sales, increased year over year by 6.8 percent in February 2016 compared with February 2015 and increased month over month by 1.1 percent in February 2016 compared with January 2016, according to the CoreLogic HPI.
...
“Fixed-rate mortgage rates dropped more than one-quarter of a percentage point in the first three months of 2016, and job creation averaged 209,000 over the same period,” said Dr. Frank Nothaft, chief economist for CoreLogic. “These economic forces will sustain home purchases during the spring and support the 5.2 percent home price appreciation CoreLogic has projected for the next year.”
emphasis added

Click on graph for larger image.

This graph shows the national CoreLogic HPI data since 1976. January 2000 = 100.

The index was up 1.1% in February (NSA), and is up 6.8% over the last year.

This index is not seasonally adjusted, and this was a solid month-to-month increase.

The index is still 6.5% below the bubble peak in nominal terms (not inflation adjusted).

The second graph shows the YoY change in nominal terms (not adjusted for inflation).

The YoY increase had been moving sideways over the last year, but has picked up a recently.

The year-over-year comparison has been positive for forty eight consecutive months.

by Calculated Risk on 4/05/2016 08:41:00 AM

The Department of Commerce reported:

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $47.1 billion in February, up $1.2 billion from $45.9 billion in January, revised. February exports were $178.1 billion, $1.8 billion more than January exports. February imports were $225.1 billion, $3.0 billion more than January imports.

The trade deficit was larger than the consensus forecast of $46.2 billion.

The first graph shows the monthly U.S. exports and imports in dollars through February 2016.

Click on graph for larger image.

Imports increased and exports increased in February.

Exports are 7% above the pre-recession peak and down 4% compared to February 2015; imports are 3% below the pre-recession peak, and unchanged compared to February 2015. 

The second graph shows the U.S. trade deficit, with and without petroleum.

The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products.

Oil imports averaged $27.48 in February, down from $32.06 in January, and down from $49.53 in February 2015.  The petroleum deficit has generally been declining and is the major reason the overall deficit has declined a little since early 2012.

The trade deficit with China increased to $28.1 billion in February, from $22.5 billion in February 2015 (there was a port slowdown last year impacting imports). The deficit with China is a substantial portion of the overall deficit.

by Calculated Risk on 4/04/2016 07:12:00 PM

Tuesday:
• Early: Reis Q1 2016 Apartment Survey of rents and vacancy rates.

• At 8:30 AM ET, Trade Balance report for February from the Census Bureau. The consensus is for the U.S. trade deficit to be at $46.2 billion in February from $45.7 billion in January.

• At 10:00 AM, Job Openings and Labor Turnover Survey for February from the BLS. Jobs openings increased in January to 5.541 million from 5.281 million in December. The number of job openings (yellow) were up 11% year-over-year, and Quits were up 1% year-over-year.

• Also at 10:00 AM, the ISM non-Manufacturing Index for March. The consensus is for index to increase to 54.0 from 53.4 in February.

From Matthen Graham at Mortgage News Daily: Mortgage Rates Steady at 6-Week Lows

Mortgage rates stayed steady today, beginning the first full week of April right in line with the lowest levels in roughly 6 weeks, depending on the lender. Most are offering conventional 30yr fixed quotes at 3.625% on top tier scenarios, with a few lenders an eighth of a percent higher or lower.

by Calculated Risk on 4/04/2016 01:51:00 PM

A few key points:
1) There is a clear seasonal pattern for house prices.
2) The surge in distressed sales during the housing bust distorted the seasonal pattern.
3) Even though distressed sales are down significantly, the seasonal factor is based on several years of data - and the factor is now overstating the seasonal change (second graph below).
4) Still the seasonal index is probably a better indicator of actual price movements than the Not Seasonally Adjusted (NSA) index.

For in depth description of these issues, see Trulia chief economist Jed Kolko's article "Let’s Improve, Not Ignore, Seasonal Adjustment of Housing Data"

Note: I was one of several people to question the change in the seasonal factor (here is a post in 2009) - and this led to S&P Case-Shiller questioning the seasonal factor too (from April 2010).  I still use the seasonal factor (I think it is better than using the NSA data).

Click on graph for larger image.

This graph shows the month-to-month change in the CoreLogic and NSA Case-Shiller National index since 1987 (both through September).   The seasonal pattern was smaller back in the '90s and early '00s, and increased since the bubble burst.

The Case-Shiller index was slightly negative month-to-month in January, however the Corelogic index was positive.

The second graph shows the seasonal factors for the Case-Shiller National index since 1987. The factors started to change near the peak of the bubble, and really increased during the bust.

The seasonal factor has started to decrease, and I expect that over the next several years - as the percent of distressed sales declines further and recent history is included in the factors - the seasonal factors will move back towards more normal levels.  However, as Kolko noted, there will be a lag with the seasonal factor since it is based on several years of recent data.

by Calculated Risk on 4/04/2016 10:46:00 AM

Reis released their Q1 2016 Office Vacancy survey this morning. Reis reported that the office vacancy rate declined to 16.2% in Q1, from 16.3% in Q4. This is down from 16.6% in Q1 2015, and down from the cycle peak of 17.6%.

From Reis Senior Economist and Director of Research Ryan Severino:

Although vacancy only declined by 10 basis points this quarter to 16.2%, the steady drumbeat of vacancy declines should be taken as a heartening sign.

Given the relative weakness during this recovery phase, it is realistic to expect that any acceleration in vacancy compression will occur gradually and inconsistently. The vacancy rate has now declined in six of the last seven quarters and remains at its lowest level since the second quarter of 2009 when it was at 16%. Although construction and net absorption both pulled back a bit this quarter, the trend over time is for both of those metrics to increase, not decrease. Therefore, a pullback this quarter should not be interpreted as a retrenchment in the market. Moreover, beginning the year with a compression in vacancy, which has not occurred consistently during this recovery, positions the market well. 10 basis points is in line with our forecast for 2016 and leaves the possibility that the market could slightly surprise to the upside if office-using employment growth remains robust.
...
Asking and effective rents both grew by 0.9% during the first quarter, marking the twenty-second consecutive quarter of asking and effective rent growth. These growth rates marginally exceeded last quarter's asking and effective rent growth of 0.8%. Consequently, the year-over-year rent growth figures were little changed versus the fourth quarter. When looking at rent growth over time, it is apparent that it is slowly, but surely gaining momentum, with quarterly increases creeping their way toward 1%, a relatively strong growth rate, especially for a market with a 16.2% vacancy rate. However, that apparent inconsistency stems from the fact that a handful of markets, particularly the technology-oriented markets, are outperforming by such a wide margin that they are pulling the rental growth rates above the level that would normally be associated with a 16.2% vacancy rate. The outliers are clearly skewing the overall results. Otherwise, the majority of markets are still at very nascent stages of rent growth.

Click on graph for larger image.

This graph shows the office vacancy rate starting in 1980 (prior to 1999 the data is annual).

Reis reported the vacancy rate was at 16.2% in Q1.

Office vacancy data courtesy of Reis.

by Calculated Risk on 4/04/2016 08:01:00 AM

Black Knight Financial Services (BKFS) released their Mortgage Monitor report for February today. According to BKFS, 4.45% of mortgages were delinquent in February, down from 5.09% in February, and the lowest since April 2007. BKFS also reported that 1.30% of mortgages were in the foreclosure process, down from 1.72% a year ago.

This gives a total of 5.75% delinquent or in foreclosure.

Press Release: Black Knight’s February Mortgage Monitor: Negative Equity Rates Improve, But Lowest-Priced Homes Continue to Struggle; “Serial Refinancers” Played Large Role in 2015 Refi Wave

Today, the Data & Analytics division of Black Knight Financial Services, Inc. released its latest Mortgage Monitor Report, based on data as of the end of February 2016. This month, in light of its recent reports on rising equity levels nationwide, Black Knight looked at those on the other end of the spectrum and found that as of the end of 2015, there were still 3.2 million borrowers in negative equity positions, representing $126 billion in underwater first and second lien housing debt. While negative equity rates continue to improve on the national level, the recovery is decidedly imbalanced in terms of both home price levels and geography. As Black Knight Data & Analytics Senior Vice President Ben Graboske explained, borrowers whose homes are in the lowest tier of home prices continue to struggle with high negative equity rates.

“Throughout 2015, the negative equity population in the U.S. decreased by over 30 percent, bringing another 1.5 million homeowners out from underwater on their mortgages,” said Graboske. “However, even after four years of improvement, the recovery has not reached all corners. When we looked at the population by home price levels, we found that over half of the nation’s underwater properties are in the lowest 20 percent of their respective markets. That’s the highest share on record. In fact, while the national negative equity rate is now 6.5 percent, for homes in the lowest price tier, it’s over 16 percent. Furthermore, this group is seeing a slower recovery than the nation as a whole. At the current rate of improvement, it would take more than five years for the negative equity rate in this lowest price tier to reach 2005 levels – roughly two-and-a-half years longer than homes in the top 20 percent.”
emphasis added

Click on graph for larger image.

This graph from Black Knight shows the mortgage performance.

From Black Knight:

The national delinquency rate is now 4.45 percent, the lowest it’s been since April 2007

February’s nearly 13 percent decline in mortgage delinquencies was largest one-month drop in 10 years; FHA loans led the way, seeing a 17 percent decline

Loans curing from a more delinquent status were up 67 percent from January, marking the highest one month volume of cures in 3 years at 645,000

With a 59,000 drop in inventory, the 90+ delinquency rate fell by 7 percent month-over month and is now below 750,000 for the first time since 2007

And on negative equity from Black Knight:

The inventory of loans in negative equity positions dropped by 31 percent (1.5 million) in 2015

At a total of 3.2 million, or 6.5 percent of all homeowners with a mortgage, this represents significant improvement from the peak in 2010, but is still well above “normal” levels

In Nevada, where home prices are still 34 percent below their peak, over 14 percent of borrowers are underwater on their mortgages, the largest share in the nation

There is much more in the mortgage monitor.