by Calculated Risk on 7/18/2017 06:32:00 PM

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

• At 8:30 AM, Housing Starts for June. The consensus is for 1.170 million SAAR, up from the May rate of 1.092 million.

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

by Calculated Risk on 7/18/2017 01:41:00 PM

The NAHB Builder confidence survey declined this morning (although still solid), and the NAHB blamed the rising prices, especially for lumber. As Diana Olick noted on CNBC:

Builder confidence jumped 6 points from November to December (63 to 69) and then jumped again to 71 in March, following the administration's repeal of certain environmental regulations specifically involving water.

Now, new tariffs on Canadian lumber of up to 24 percent announced by the Trump administration in May, as well as the expectation of additional tariffs on other homebuilding materials imported from overseas, are overtaking the benefits of deregulation. The cost of framing lumber has spiked in recent months and continues to rise today, which only exacerbates already rising prices for land and skilled labor.

Those tariffs are impacting lumber prices.

Click on graph for larger image in graph gallery.

This graph shows two measures of lumber prices: 1) Framing Lumber from Random Lengths through June 2017 (via NAHB), and 2) CME framing futures.

Right now Random Lengths prices are up 14% from a year ago, and CME futures are up about 18% year-over-year.

And immigration policy will likely slow household formation. Housing economist Tom Lawler wrote an excellent article last month: Lawler: Reasonable Population Projections Are Important!. Here are some excepts (look at the table and see how important immigration is for household formation).

From Tom Lawler:

[B]elow is a table of what labor force growth and US household formations would be under each scenario if (1) labor force participation rates by age remained constant at 2016 levels; and (2) household headship rates by age remain constant at my “best guess” rates for 2016 (there are no good, reliable data on households since 2010, but that is a different story!). I realize, of course, that holding labor force participation rates and headship rates by age constant is not a “best guess” projection, but I’m just trying to show sensitivities to different population assumptions.

Annual Growth Rate in the US Labor Force Assuming Constant Labor Force Participation Rates by Age
	2018	2019	2020
Zero Net International Migration	0.04%	0.02%	-0.01%
NIM of 700,000/year	0.28%	0.27%	0.24%
Census 2014 Projections	0.50%	0.50%	0.48%
US Household Growth Assuming Constant Headship Rates by Age
	2018	2019	2020
Zero Net International Migration	1,026,077	966,155	924,937
NIM of 700,000/year	1,231,995	1,180,916	1,148,645
Census 2014 Projections	1,485,278	1,455,615	1,442,362

As the table suggests, analysts using the extremely dated Census 2014 population projections would conclude that the US would have “decent” labor force growth and quite strong US household growth over the next three years. Contrary to what some analysts suggest, however, that strong growth is not in the main the result of the current “demographics” of the population, but rather is mainly the result of what are now clearly unrealistically high assumptions about net international migration. If instead the US had zero net international migration of the next three years, the US labor force would show no growth unless labor force participation rates increased, and US household growth would average less than one million per year unless headship rates increased. Not surprisingly, a “sorta Trumpy” scenario of net international migration of 700,000 a year – probably the closest there is a a “base case” scenario” produces projections about half way in between these two extremes.

From a policy perspective, it is possible that deregulation could give a boost to housing (and also changes in local ordinances), but the current trade and immigration policies are a net negative for the U.S. economy and especially housing.

by Calculated Risk on 7/18/2017 10:06:00 AM

The National Association of Home Builders (NAHB) reported the housing market index (HMI) was at 64 in July, down from 66 in June. Any number above 50 indicates that more builders view sales conditions as good than poor.

From NAHB: Builder Confidence Slips Two Points in July, Remains Solid

Builder confidence in the market for newly-built single-family homes slipped two points in July to a level of 64 from a downwardly revised June reading on the National Association of Home Builders/Wells Fargo Housing Market Index (HMI). It is the lowest reading since November 2016.

“Our members are telling us they are growing increasingly concerned over rising material prices, particularly lumber,” said NAHB Chairman Granger MacDonald, a home builder and developer from Kerrville, Texas. “This is hurting housing affordability even as consumer interest in the new-home market remains strong.”

“The HMI measure of current sales conditions has been at 70 or higher for eight straight months, indicating strong demand for new homes,” said NAHB Chief Economist Robert Dietz. “However, builders will need to manage some increasing supply-side costs to keep home prices competitive.”
...
All three HMI components registered losses in July but are still in solid territory. The components gauging current sales conditions fell two points to 70 while the index charting sales expectations in the next six months dropped two points to 73. Meanwhile, the component measuring buyer traffic slipped one point to 48.

Looking at the three-month moving averages for regional HMI scores, the Northeast rose one point to 47. The West and Midwest each edged one point lower to 75 and 66, respectively. The South dropped three points to 67.
emphasis added

Click on graph for larger image.

This graph show the NAHB index since Jan 1985.

Note: Both Trump's trade and immigration policies are bad for housing.

This was below the consensus forecast, but still a solid reading.

by Calculated Risk on 7/17/2017 07:58:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Higher Despite Friendly Market Movement

Mortgage rates are largely dictated by movements in bond markets--specifically mortgage-backed securities (MBS).  When bonds improve, prices rise and investors are willing to pay more to buy loans.  This results in rates moving lower.  In other words, bond market improvement = lower rates.

With all of that in mind, today is a bit of a paradox as the average lender is quoting slightly higher rates today, despite general improvements in bond markets.  Nothing too terribly mysterious is at work here though.  The inconsistency has more to do with the timing of Friday's market movements and the generally narrow range over the past four days.  Specifically, bonds weakened progressively into Friday afternoon and most lenders never fully adjusted rate sheets to account for that weakness.   This left the average lender at a disadvantage to begin the new week and today's gains in bond markets weren't enough to offset it.

The most prevalently-quoted conventional 30yr fixed rates remain in a range from 4.0%-4.125% on top tier scenarios.  Most clients will not see any change in the "rate" side of the equation compared to Friday, thus implying moderately higher upfront costs.  

Tuesday:
• At 10:00 AM ET, The July NAHB homebuilder survey. The consensus is for a reading of 68, up from 67 in June. Any number above 50 indicates that more builders view sales conditions as good than poor.

by Calculated Risk on 7/17/2017 01:22:00 PM

Container traffic gives us an idea about the volume of goods being exported and imported - and usually some hints about the trade report since LA area ports handle about 40% of the nation's container port traffic.

The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).

To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.

Click on graph for larger image.

On a rolling 12 month basis, inbound traffic was up 0.5% compared to the rolling 12 months ending in May.   Outbound traffic was down 0.1% compared to the rolling 12 months ending in May.

The 2nd graph is the monthly data (with a strong seasonal pattern for imports).

Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March depending on the timing of the Chinese New Year.  

In general imports have been increasing, and exports are moving sideways.

by Calculated Risk on 7/17/2017 10:43:00 AM

The following graph shows heavy truck sales since 1967 using data from the BEA. The dashed line is the June 2017 seasonally adjusted annual sales rate (SAAR).

Heavy truck sales really collapsed during the great recession, falling to a low of 181 thousand in April and May 2009, on a seasonally adjusted annual rate basis (SAAR). Then sales increased more than 2 1/2 times, and hit 479 thousand SAAR in June 2015.

Heavy truck sales declined again - probably mostly due to the weakness in the oil sector - and bottomed at 352 thousand SAAR in October 2016.


Click on graph for larger image.

With the increase in oil prices over the last year, heavy truck sales have been increasing too.

Heavy truck sales were at 402 thousand SAAR in June 2017.>

by Calculated Risk on 7/17/2017 08:34:00 AM

From the NY Fed: Empire State Manufacturing Survey

Business activity grew modestly in New York State, according to firms responding to the July 2017 Empire State Manufacturing Survey. The headline general business conditions index fell ten points to 9.8. The new orders index moved down to 13.3, and the shipments index fell to 10.5, suggesting that orders and shipments continued to grow, though at a somewhat slower pace than in June. ...
...
The index for number of employees fell for a third consecutive month, though it remained positive at 3.9 — a sign that employment was growing, but not as rapidly as in earlier months. The average workweek index fell to zero, indicating that hours worked remained the same. ...

Indexes assessing the six-month outlook remained favorable, though firms were somewhat less optimistic about future conditions than in June.
emphasis added

This was below the consensus forecast of a reading of 15.0.

by Calculated Risk on 7/16/2017 07:49:00 PM

Weekend:
• Schedule for Week of July 16, 2017

Monday:
• At 8:30 AM ET, The New York Fed Empire State manufacturing survey for July. The consensus is for a reading of 15.0, down from 19.8.

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

Oil prices were up over the last week with WTI futures at $46.61 per barrel and Brent at $48.91 per barrel.  A year ago, WTI was at $46, and Brent was at $46 - so oil prices are up slightly year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.24 per gallon - a year ago prices were at $2.22 per gallon - so gasoline prices are up slightly year-over-year.

by Calculated Risk on 7/16/2017 09:10:00 AM

During the recession, I started following the Sacramento market to look for changes in the mix of houses sold (equity, REOs, and short sales). For several years, not much changed. But in 2012 and 2013, we saw some significant changes with a dramatic shift from distressed sales to more normal equity sales.

This data suggested healing in the Sacramento market and other distressed markets showed similar improvement.  Note: The Sacramento Association of REALTORS® started breaking out REOs in May 2008, and short sales in June 2009.

In June, total sales were up 0.5% from June 2016, and conventional equity sales were up 2.5% compared to the same month last year.

In June, 4.2% of all resales were distressed sales. This was down from 4.7% last month, and down from 7.0% in May 2016.

The percentage of REOs was at 1.6%, and the percentage of short sales was 1.6%.

Sacramento Realtor Press Release: Most monthly sales since July 2009, median price continues to increase

June showed a 5.4% increase in sale from May, up to 1,824 sales from 1,731. This is the most monthly sales since July 2009, when that month closed with 1,848. Compared with 2016, current number is also an increase, rising .5% from the 1,815 sales of June 2016.
...
Total Active Listing Inventory increased 8.8% from 1,935 to 2,105 for the month, but is a 18.3% drop from the 2,577 inventory of June last year. The Months of Inventory increased slightly for the month from 1.1 Months to 1.2MMonths. A year ago the Months of inventory was 1.4. Listings published for the month decreased .3% from 2,385 to 2,377. “Listings published” signifies all listings that came on the market for the current month. Of the 2,385 listings that came on the market for the month of June, 870 were still listed as active, 1,203 are currently pending sales, 177 were already sold and 127 are either off the market, expired or other.

The Average DOM (days on market) for homes sold dropped from 20 to 18 days.

Here are the statistics.

Click on graph for larger image.

This graph shows the percent of REO sales, short sales and conventional sales.

There has been a sharp increase in conventional (equity) sales that started in 2012 (blue) as the percentage of distressed sales declined sharply.

Active Listing Inventory for single family homes decreased 18.3% year-over-year (YoY) in June.  This was the 26th consecutive monthly YoY decrease in inventory in Sacramento.

Cash buyers accounted for 12.3% of all sales - this has been generally declining (frequently investors).

Summary: This data suggests a normal market with few distressed sales, and less investor buying - but with limited inventory.

by Calculated Risk on 7/15/2017 08:11:00 AM

The key economic report this week is June Housing Starts on Wednesday.

For manufacturing, the July New York and Philly Fed manufacturing surveys, will be released this week.

----- Monday, July 17th -----
8:30 AM: The New York Fed Empire State manufacturing survey for July. The consensus is for a reading of 15.0, down from 19.8.

----- Tuesday, July 18th -----
10:00 AM: The July NAHB homebuilder survey. The consensus is for a reading of 68, up from 67 in June. Any number above 50 indicates that more builders view sales conditions as good than poor.

----- Wednesday, July 19th -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

8:30 AM: Housing Starts for June. The consensus is for 1.170 million SAAR, up from the May rate of 1.092 million.

This graph shows total and single unit starts since 1968.

The graph shows the huge collapse following the housing bubble, and then - after moving sideways for a couple of years - housing is now recovering.

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

----- Thursday, July 20th -----
8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 245 thousand initial claims, down from 247 thousand the previous week.

8:30 AM: the Philly Fed manufacturing survey for July. The consensus is for a reading of 23.5, down from 27.6.

----- Friday, July 21st -----
10:00 AM: Regional and State Employment and Unemployment (Monthly) for June 2017