by Calculated Risk on 1/25/2017 04:51:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Resume Big-Picture Uptrend

Mortgage rates moved higher for the 5th time in the past 6 business days. The past 2 days have combined to bring rates a full .125% higher. That's the increment by which rates are most commonly divided (i.e. 4.0, 4.125%, 4.25%, etc.). ... The average lender is once-again quoting 4.25% on top tier conventional 30yr fixed scenarios. This isn't the first time we've seen 4.25% this year, but closing costs are slightly higher today. That means effective rates are at 2017 highs. Several lenders are already up to 4.375% and a scant few remain at 4.125%.
emphasis added

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 247 thousand initial claims, up from 234 thousand the previous week.

• Also at 8:30 AM, Chicago Fed National Activity Index for December. This is a composite index of other data.

• At 10:00 AM, New Home Sales for December from the Census Bureau. The consensus is for a decrease in sales to 590 thousand Seasonally Adjusted Annual Rate (SAAR) in December from 592 thousand in November.

• At 11:00 AM, the Kansas City Fed manufacturing survey for January.

by Calculated Risk on 1/25/2017 12:49:00 PM

The automakers will report January vehicle sales on Wednesday, February 1st.

Note: There were 24 selling days in January 2017, unchanged from 24 in January 2016.

From WardsAuto: Forecast: January Forecast Calls for Low Sales, High Inventory

The U.S. automotive industry is expected to a have a slow start in the new year, with January light-vehicle sales down 4.4% from like-2016. ... The resulting seasonally adjusted annual rate is 17.0 million units, well below the 18.3 million in the previous month and 17.4 million year-ago.
...
December inventory was 9.2% above same-month 2015, the biggest year-over-year gap since the summer of 2014. Weak sales in January will keep inventory levels high, 16.0% greater than year-ago. A 93-day supply is expected to be available at the end of the month, a major jump from 62 days in December and 77 in January 2016.
emphasis added

Here is a table (source: BEA) showing the top 10 years for light vehicle sales.

2016 was the best ever, and 2017 will probably be mostly flat (no growth) compared to 2016.  With high inventories, production in 2017 will probably decline - even with solid sales.

Light Vehicle Sales, Top 10 Years
	Year	Sales (000s)
1	2016	17,465
2	2015	17,396
3	2000	17,350
4	2001	17,122
5	2005	16,948
6	1999	16,894
7	2004	16,867
8	2002	16,816
9	2003	16,639
10	2006	16,504

by Calculated Risk on 1/25/2017 10:26:00 AM

A few excerpts from a note by Goldman Sachs economists Zach Pandl and Jan Hatzius: FOMC Preview: Holding Pattern

The FOMC looks very likely to keep policy unchanged next week, and should make only modest revisions to the post-meeting statement.

We expect constructive comments on economic activity, assuming GDP growth for Q4 (reported this Friday) is in line with or better than our +2.2% forecast. The committee will probably keep its description of inflation trends roughly unchanged, but it may acknowledge that headline PCE inflation should reach 2% relatively soon (instead of “over the medium term”).

We look for the balance of risk assessment and the characterization of current policy (“accommodative”) to remain unchanged. The statement will likely leave out any explicit mention of fiscal policy for the time being.

CR note: The FOMC meeting is scheduled next week for Tuesday, January 31st and Wednesday, February 1st. The consensus is there will be no change in policy at this meeting.

by Calculated Risk on 1/25/2017 07:00:00 AM

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

Mortgage applications increased 4.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 20, 2017. This week’s results included an adjustment for the MLK Day holiday.

... The Refinance Index increased 0.2 percent from the previous week. The seasonally adjusted Purchase Index increased 6 percent from one week earlier to its highest level since June 2016. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 0.1 percent higher than the same week one year ago.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,000 or less) increased to 4.35 percent from 4.27 percent, with points decreasing to 0.30 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 since 1990.

It would take a substantial decrease in mortgage rates to see a significant increase in refinance activity - although we might see more cash-out refis.


The second graph shows the MBA mortgage purchase index.

Even with the increase in mortgage rates, purchase activity is still holding up - this is the highest level for the index since June 2016.

However refinance activity has declined significantly.

by Calculated Risk on 1/24/2017 03:44:00 PM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Starts New Year with Strong Gain

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), started the year on a strong note, posting a monthly gain of 0.4 percent in January. This follows a 0.3 percent gain in December, November and October. All data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB was up 4.6 percent over this time last year.
...
In January all of the four core categories for the CAB improved and the diffusion index was stable at 65 percent. Production-related indicators were positive, with the housing report indicating accelerating activity and trends in construction-related resins, pigments and related performance chemistry generally improved. Other indicators, including equity prices, product prices, and inventory were also positive.
...
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added

Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

CAB has increased solidly over the last several months, and this suggests an increase in Industrial Production over the next year.

by Calculated Risk on 1/24/2017 01:15:00 PM

From the BLS: Regional and State Employment and Unemployment Summary

Unemployment rates were significantly lower in December in 10 states, higher in 1 state, and stable in 39 states and the District of Columbia, the U.S. Bureau of Labor Statistics reported today. Eleven states had notable jobless rate decreases from a year earlier, 2 states had increases, and 37 states and the District had no significant change. The national unemployment rate, 4.7 percent, was little changed from November but 0.3 percentage point lower than in December 2015.
...
New Hampshire had the lowest unemployment rate in December, 2.6 percent, followed by Massachusetts and South Dakota, 2.8 percent each. Alaska and New Mexico had the highest jobless rates, 6.7 percent and 6.6 percent, respectively.
emphasis added

Click on graph for larger image.

This graph shows the current unemployment rate for each state (red), and the max during the recession (blue). All states are well below the maximum unemployment rate for the recession.

The size of the blue bar indicates the amount of improvement.   The yellow squares are the lowest unemployment rate per state since 1976.

The states are ranked by the highest current unemployment rate. Alaska, at 6.7%, had the highest state unemployment rate.  Note that the lowest recorded unemployment rate in Alaska was 6.3%, so this is pretty close to the all time low.

The second graph shows the number of states (and D.C.) with unemployment rates at or above certain levels since January 2006. At the worst of the employment recession, there were 11 states with an unemployment rate at or above 11% (red).

Currently no state has an unemployment rate at or above 7% (light blue); Only four states are at or above 6% (dark blue). The states are Alaska (6.7%), New Mexico (6.6%),  Alabama (6.2%), and Louisiana (6.1%).

by Calculated Risk on 1/24/2017 11:36:00 AM

Earlier: NAR: "Existing-Home Sales Slide in December; 2016 Sales Best Since 2006"

Two key points:

1) Many of these December existing home sales were already in escrow - with mortgage rates locked - before the recent increase in mortgage rates (rates started increasing after the election).

With the recent increase in rates, I'd expect some decline in sales volume as happened following the "taper tantrum" in 2013.   So we might see sales fall to 5 million SAAR or below over the next 6 months.  That would still be solid existing home sales.   We might also see a little more inventory in the coming months, and therefore less price appreciation.

Usually a change in interest rates impacts new home sales first, because new home sales are reported when the contract is signed, whereas existing home sales are reported when the contract closes.  So we might see some impact on new home sales for December.

2) Inventory is still very low and falling year-over-year (down 6.3% year-over-year in December). More inventory would probably mean smaller price increases and slightly higher sales, and less inventory means lower sales and somewhat larger price increases.

Two of the key reasons inventory is low: 1) A large number of single family home and condos were converted to rental units. In 2015, housing economist Tom Lawler estimated there were 17.5 million renter occupied single family homes in the U.S., up from 10.7 million in 2000. Many of these houses were purchased by investors, and rents have increased substantially, and the investors are not selling (even though prices have increased too). Most of these rental conversions were at the lower end, and that is limiting the supply for first time buyers. 2) Baby boomers are aging in place (people tend to downsize when they are 75 or 80, in another 10 to 20 years for the boomers). Instead we are seeing a surge in home improvement spending, and this is also limiting supply.

Of course low inventory keeps potential move-up buyers from selling too.  If someone looks around for another home, and inventory is lean, they may decide to just stay and upgrade.

I've heard reports of more inventory in some coastal areas of California, in New York city and for high rise condos in Miami.  But we haven't seen a change in trend for inventory yet.

The following graph shows existing home sales Not Seasonally Adjusted (NSA).

Click on graph for larger image.

Sales NSA in December (red column) were the highest for December since 2006 (NSA).

Note that sales NSA are in the slower seasonal period, and will really slow seasonally in January and February.

by Calculated Risk on 1/24/2017 10:12:00 AM

From the NAR: Existing-Home Sales Slide in December; 2016 Sales Best Since 2006

Existing-home sales closed out 2016 as the best year in a decade, even as sales declined in December as the result of ongoing affordability tensions and historically low supply levels, according to the National Association of Realtors®.

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, finished 2016 at 5.45 million sales and surpassed 2015 (5.25 million) as the highest since 2006 (6.48 million).

In December, existing sales decreased 2.8 percent to a seasonally adjusted annual rate of 5.49 million in December from an upwardly revised 5.65 million in November. With last month's slide, sales are only 0.7 percent higher than a year ago....

Total housing inventory at the end of December dropped 10.8 percent to 1.65 million existing homes available for sale, which is the lowest level since NAR began tracking the supply of all housing types in 1999. Inventory is 6.3 percent lower than a year ago (1.76 million), has fallen year-over-year for 19 straight months and is at a 3.6-month supply at the current sales pace (3.9 months in December 2015). 

Click on graph for larger image.

This graph shows existing home sales, on a Seasonally Adjusted Annual Rate (SAAR) basis since 1993.

Sales in December (5.49 million SAAR) were 2.8% lower than last month, and were 0.7% above the December 2015 rate.

The second graph shows nationwide inventory for existing homes.

According to the NAR, inventory decreased to 1.65 million in December from 1.85 million in November.   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 6.3% year-over-year in December compared to December 2015.  

Months of supply was at 3.6 months in December.

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

by Calculated Risk on 1/23/2017 06:54:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Erase Last Week's Losses

Mortgage rates fell somewhat significantly today, fully offsetting last week's rise. Specifically, today's average rates are back in line with those seen on Friday ... 4.125% is back in play, now sharing relatively equal territory with 4.25% as the two most prevalently-quoted conventional 30yr fixed rates on top tier scenarios.
emphasis added

Tuesday:
• At 10:00 AM ET, Existing Home Sales for December from the National Association of Realtors (NAR). The consensus is for 5.54 million SAAR, down from 5.61 million in November. Housing economist Tom Lawler expects the NAR to report sales of 5.55 million SAAR in December.

• Also at 10:00 AM, Richmond Fed Survey of Manufacturing Activity for January.

• Also at 10:00 AM, Regional and State Employment and Unemployment (Monthly) for December 2016

by Calculated Risk on 1/23/2017 03:13:00 PM

Just noting these goals for future reference. Based on demographics, I think 2.5 million jobs per year is too high. On GDP, now that the prime working age group is increasing again (by about 0.5% per year), I'd expect some pickup in GDP growth. To average 3.5% over the next four years, we'd have to see an increase in productivity too.

• Jobs: Ten Million jobs over the next four years. "Create a dynamic booming economy that will create 25 million new jobs over the next decade." Source.

• GDP: 3.5% real annual GDP growth. "Boost growth to 3.5 percent per year on average, with the potential to reach a 4 percent growth rate." Source.

Update: Jan 1, 2018: These goals have been removed from the Trump website.