by Calculated Risk on 2/01/2017 02:01:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in December indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate stayed near its recent low. Household spending has continued to rise moderately while business fixed investment has remained soft. Measures of consumer and business sentiment have improved of late. Inflation increased in recent quarters but is still below the Committee's 2 percent longer-run objective. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will rise to 2 percent over the medium term. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1/2 to 3/4 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a return to 2 percent inflation.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Jerome H. Powell; and Daniel K. Tarullo.
emphasis added

by Calculated Risk on 2/01/2017 11:34:00 AM

Earlier today, the Census Bureau reported that overall construction spending decreased in December:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during December 2016 was estimated at a seasonally adjusted annual rate of $1,181.5 billion, 0.2 percent below the revised November estimate of $1,184.4 billion. The December figure is 4.2 percent above the December 2015 estimate of $1,133.7 billion.

The value of construction in 2016 was $1,162.4 billion, 4.5 percent above the $1,112.4 billion spent in 2015.

Private spending increased, however public spending decreased in December:

Spending on private construction was at a seasonally adjusted annual rate of $897.0 billion, 0.2 percent above the revised November estimate of $894.8 billion. ...

In December, the estimated seasonally adjusted annual rate of public construction spending was $284.5 billion, 1.7 percent below the revised November estimate of $289.6 billion.
emphasis added

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending has been generally increasing, and is still 31% below the bubble peak.

Non-residential spending is now 4% above the previous peak in January 2008 (nominal dollars).

Public construction spending is now 13% below the peak in March 2009, and 8% above the austerity low in February 2014.

The second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is up 4%. Non-residential spending is up 9% year-over-year. Public spending is down 2% year-over-year.

Looking forward, all categories of construction spending should increase in 2017.

This was below the consensus forecast of a 0.2% increase for December, however the previous months were revised up.

by Calculated Risk on 2/01/2017 10:03:00 AM

The ISM manufacturing index indicated expansion in January. The PMI was at 56.0% in January, up from 54.5% in December. The employment index was at 56.1%, up from 52.8% last month, and the new orders index was at 60.4%, up from 60.3%.

From the Institute for Supply Management: January 2017 Manufacturing ISM® Report On Business®

Economic activity in the manufacturing sector expanded in January, and the overall economy grew for the 92nd consecutive month, say the nation’s supply executives in the latest Manufacturing ISM® Report On Business®.

The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee; “The January PMI® registered 56 percent, an increase of 1.5 percentage points from the seasonally adjusted December reading of 54.5 percent. The New Orders Index registered 60.4 percent, an increase of 0.1 percentage point from the seasonally adjusted December reading of 60.3 percent. The Production Index registered 61.4 percent, 2 percentage points higher than the seasonally adjusted December reading of 59.4 percent. The Employment Index registered 56.1 percent, an increase of 3.3 percentage points from the seasonally adjusted December reading of 52.8 percent. Inventories of raw materials registered 48.5 percent, an increase of 1.5 percentage points from the December reading of 47 percent. The Prices Index registered 69 percent in January, an increase of 3.5 percentage points from the December reading of 65.5 percent, indicating higher raw materials prices for the 11th consecutive month. The PMI®, New Orders, and Production Indexes all registered their highest levels since November of 2014, and comments from the panel are generally positive regarding demand levels and business conditions.”
emphasis added

Click on graph for larger image.

Here is a long term graph of the ISM manufacturing index.

This was above expectations of 55.0%, and suggests manufacturing expanded at as faster pace in January than in December.

Another solid report.

by Calculated Risk on 2/01/2017 08:32:00 AM

From ADP:

Private sector employment increased by 246,000 jobs from December 2016 to January 2017 according to the January ADP National Employment Report®. ... The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis.
...
“The U.S. labor market is hitting on all cylinders and we saw small and midsized businesses perform exceptionally well,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Further analysis shows that services gains have rebounded from their tepid December pace, adding 201,000 jobs. The goods producers added 46,000 jobs, which is the strongest job growth that sector has seen in the last two years.”

Mark Zandi, chief economist of Moody’s Analytics said, “2017 got off to a strong start in the job market. Job growth is solid across most industries and company sizes. Even the energy sector is adding to payrolls again.”

This was well above the consensus forecast for 168,000 private sector jobs added in the ADP report. 

The BLS report for January will be released Friday, and the consensus is for 175,000 non-farm payroll jobs added in January.

by Calculated Risk on 2/01/2017 07:00:00 AM

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

Mortgage applications decreased 3.2 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 27, 2017. The previous week’s results included an adjustment for the MLK Day holiday.

... The Refinance Index decreased 1 percent from the previous week. The seasonally adjusted Purchase Index decreased 6 percent from one week earlier. The unadjusted Purchase Index increased 12 percent compared with the previous week and was 2 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 its highest level since December 2016, 4.39 percent, from 4.35 percent, with points increasing to 0.34 from 0.30 (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 recent increase in mortgage rates, purchase activity is still holding up.

However refinance activity has declined significantly.

by Calculated Risk on 1/31/2017 08:01:00 PM

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

• At 8:15 AM, The ADP Employment Report for January. This report is for private payrolls only (no government). The consensus is for 168,000 payroll jobs added in January, up from 153,000 added in December.

• At 10:00 AM, ISM Manufacturing Index for January. The consensus is for the ISM to be at 55.0, up from 54.7 in December.  The employment index was at 53.1% in December, and the new orders index was at 60.2%.

• At 10:00 AM, Construction Spending for December. The consensus is for a 0.2% increase in construction spending.

• All day, Light vehicle sales for January. The consensus is for light vehicle sales to decrease to 17.7 million SAAR in January, from 18.4 million in  December (Seasonally Adjusted Annual Rate).

• At 2:00 PM, FOMC Meeting Announcement. No change to FOMC policy is expected at this meeting.

by Calculated Risk on 1/31/2017 05:11:00 PM

Economist Tom Lawler sent me the table below of short sales, foreclosures and all cash sales for selected cities in December.

On distressed: The total "distressed" share is down year-over-year in all of these markets.

Short sales and foreclosures are mostly down in these areas.

The All Cash Share (last two columns) is mostly declining year-over-year. As investors continue to pull back, the share of all cash buyers continues to decline.

	Short Sales Share		Foreclosure Sales Share		Total "Distressed" Share		All Cash Share
	Dec- 2016	Dec- 2015	Dec- 2016	Dec- 2015	Dec- 2016	Dec- 2015	Dec- 2016	Dec- 2015
Las Vegas	4.8%	6.8%	6.2%	5.9%	11.0%	12.7%	28.7%	28.4%
Reno**	1.0%	4.0%	3.0%	2.0%	4.0%	6.0%
Phoenix	1.7%	3.7%	2.1%	2.9%	3.8%	6.6%	23.1%	23.9%
Sacramento	2.3%	4.0%	2.6%	4.0%	4.9%	8.0%	15.3%	16.2%
Minneapolis	1.6%	2.6%	5.5%	9.0%	7.1%	11.6%	12.8%	13.3%
Mid-Atlantic	3.4%	4.2%	9.3%	12.5%	12.7%	16.7%	16.5%	18.7%
So. California*					4.8%	7.0%	21.1%	21.0%
Florida SF	2.0%	3.3%	7.4%	14.4%	9.3%	17.7%	28.3%	33.7%
Florida C/TH	1.2%	2.1%	5.7%	12.1%	6.9%	14.1%	55.8%	60.5%
Miami-Dade Co SF	3.7%	6.7%	11.2%	28.7%	14.9%	35.3%	27.1%	34.5%
Miami-Dade Co CTH	2.3%	2.9%	10.8%	17.0%	13.1%	19.9%	57.6%	64.5%
Northeast Florida					13.1%	24.0%
Chicago (city)					14.6%	17.9%
Spokane					8.4%	14.4%
Chicago (city)					14.6%	17.9%
Rhode Island					9.5%	11.0%
Toledo							25.6%	33.4%
Tucson							23.7%	28.0%
Knoxville							21.6%	25.4%
Peoria							28.3%	24.0%
Georgia***							20.7%	22.7%
Omaha							15.7%	19.0%
Richmond VA			8.5%	11.4%			15.4%	19.8%
Memphis			10.3%	15.6%
*share of existing home sales, based on property records **Single Family Only ***GAMLS

by Calculated Risk on 1/31/2017 02:37:00 PM

Here is the earlier post on Case-Shiller: Case-Shiller: National House Price Index increased 5.6% year-over-year in November

It has been more than ten years since the bubble peak. In the Case-Shiller release this morning, the seasonally adjusted National Index (SA), was reported as being slightly above the previous bubble peak. However, in real terms, the National index (SA) is still about 14.9% below the bubble peak.

The year-over-year increase in prices is mostly moving sideways now around 5%. In November, the index was up 5.6% YoY.

In the earlier post, I graphed nominal house prices, but it is also important to look at prices in real terms (inflation adjusted).  Case-Shiller, CoreLogic and others report nominal house prices.  As an example, if a house price was $200,000 in January 2000, the price would be close to $277,000 today adjusted for inflation (38.5%).  That is why the second graph below is important - this shows "real" prices (adjusted for inflation).

Nominal House Prices

The first graph shows the monthly Case-Shiller National Index SA, the monthly Case-Shiller Composite 20 SA, and the CoreLogic House Price Indexes (through November) in nominal terms as reported.

In nominal terms, the Case-Shiller National index (SA) is at a new peak, and the Case-Shiller Composite 20 Index (SA) is back to August 2005 levels, and the CoreLogic index (NSA) is back to September 2005.

Real House Prices

The second graph shows the same three indexes in real terms (adjusted for inflation using CPI less Shelter). Note: some people use other inflation measures to adjust for real prices.

In real terms, the National index is back to April 2004 levels, the Composite 20 index is back to November 2003, and the CoreLogic index back to March 2004.

In real terms, house prices are back to late 2003 / early 2004 levels.

Price-to-Rent

In October 2004, Fed economist John Krainer and researcher Chishen Wei wrote a Fed letter on price to rent ratios: House Prices and Fundamental Value. Kainer and Wei presented a price-to-rent ratio using the OFHEO house price index and the Owners' Equivalent Rent (OER) from the BLS.

Here is a similar graph using the Case-Shiller National, Composite 20 and CoreLogic House Price Indexes.

This graph shows the price to rent ratio (January 1998 = 1.0).

On a price-to-rent basis, the Case-Shiller National index is back to October 2003 levels, the Composite 20 index is back to June 2003 levels, and the CoreLogic index is back to July 2003.

In real terms, and as a price-to-rent ratio, prices are back to late 2003 / early 2004  - and the price-to-rent ratio maybe moving a little more sideways now.

by Calculated Risk on 1/31/2017 10:45:00 AM

The Census Bureau released the Residential Vacancies and Homeownership report for Q4 2016.

This report is frequently mentioned by analysts and the media to track household formation, the homeownership rate, and the homeowner and rental vacancy rates.  However, there are serious questions about the accuracy of this survey.

This survey might show the trend, but I wouldn't rely on the absolute numbers.  The Census Bureau is investigating the differences between the HVS, ACS and decennial Census, and analysts probably shouldn't use the HVS to estimate the excess vacant supply or household formation, or rely on the homeownership rate, except as a guide to the trend.

Click on graph for larger image.

The Red dots are the decennial Census homeownership rates for April 1st 1990, 2000 and 2010. The HVS homeownership rate increased to 63.7% in Q4, from 63.5% in Q3.

I'd put more weight on the decennial Census numbers - and given changing demographics, the homeownership rate is probably close to a bottom.

The HVS homeowner vacancy was unchanged at 1.8% in Q4. 

Once again - this probably shows the general trend, but I wouldn't rely on the absolute numbers.

The rental vacancy rate increased to 6.9% in Q4.

The quarterly HVS is the most timely survey on households, but there are many questions about the accuracy of this survey.

Overall this suggests that vacancies have declined significantly, and my guess is the homeownership rate is probably close to the bottom.

by Calculated Risk on 1/31/2017 09:38:00 AM

S&P/Case-Shiller released the monthly Home Price Indices for November ("November" is a 3 month average of September, October and November prices).

This release includes prices for 20 individual cities, two composite indices (for 10 cities and 20 cities) and the monthly National index.

Note: Case-Shiller reports Not Seasonally Adjusted (NSA), I use the SA data for the graphs.

From S&P: The S&P CoreLogic Case-Shiller National Index Hits New Peak as Home Prices Gains Continue

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 5.6% annual gain in November, up from 5.5% last month. The 10-City Composite posted a 4.5% annual increase, up from 4.3% the previous month. The 20-City Composite reported a year-over-year gain of 5.3%, up from 5.1% in October.

Seattle, Portland, and Denver reported the highest year-over-year gains among the 20 cities over each of the last 10 months. In November, Seattle led the way with a 10.4% year-over-year price increase, followed by Portland with 10.1%, and Denver with an 8.7% increase. Eight cities reported greater price increases in the year ending November 2016 versus the year ending October 2016.
...
Before seasonal adjustment, the National Index posted a month-over-month gain of 0.2% in November. Both the 10-City Composite and the 20-City Composite posted 0.2% increases in November. After seasonal adjustment, the National Index recorded a 0.8% month-over-month increase, while both the 10-City and 20-City Composites each reported 0.9% month-over-month increases. Ten of 20 cities reported increases in November before seasonal adjustment; after seasonal adjustment, all 20 cities saw prices rise.
emphasis added

Click on graph for larger image.

The first graph shows the nominal seasonally adjusted Composite 10, Composite 20 and National indices (the Composite 20 was started in January 2000).

The Composite 10 index is off 9.2% from the peak, and up 0.9% in November (SA).

The Composite 20 index is off 7.0% from the peak, and up 0.9% (SA) in November.

The National index is slightly above the previous peak (SA), and up 0.8% (SA) in November.  The National index is up 36.1% from the post-bubble low set in December 2011 (SA).

The second graph shows the Year over year change in all three indices.

The Composite 10 SA is up 4.5% compared to November 2015.

The Composite 20 SA is up 5.3% year-over-year.

The National index SA is up 5.6% year-over-year.

Note: According to the data, prices increased in all 20 cities month-over-month seasonally adjusted.

I'll have more later.