by Calculated Risk on 8/31/2017 08:39:00 AM

The BEA released the Personal Income and Outlays report for July:

Personal income increased $65.6 billion (0.4 percent) in July according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $39.6 billion (0.3 percent) and personal consumption expenditures (PCE) increased $44.7 billion (0.3 percent).
...
Real PCE increased 0.2 percent. The PCE price index increased 0.1 percent. Excluding food and energy, the PCE price index increased 0.1 percent.

The July PCE price index increased 1.4 percent year-over-year and the July PCE price index, excluding food and energy, also increased 1.4 percent year-over-year.

The following graph shows real Personal Consumption Expenditures (PCE) through July 2017 (2009 dollars). Note that the y-axis doesn't start at zero to better show the change.

Click on graph for larger image.

The dashed red lines are the quarterly levels for real PCE.

The increase in personal income was at expectations,  and the increase in PCE was slightly below expectations.

by Calculated Risk on 8/31/2017 08:33:00 AM

The DOL reported:

In the week ending August 26, the advance figure for seasonally adjusted initial claims was 236,000, an increase of 1,000 from the previous week's revised level. The previous week's level was revised up by 1,000 from 234,000 to 235,000. The 4-week moving average was 236,750, a decrease of 1,250 from the previous week's revised average. The previous week's average was revised up by 250 from 237,750 to 238,000.
emphasis added

The previous week was revised up.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 236,750.

This was close to the consensus forecast.

The low level of claims suggests relatively few layoffs.

Note: Claims will increase over the next few weeks due to Hurricane Harvey.

by Calculated Risk on 8/30/2017 07:46:00 PM

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released. The consensus is for 237 thousand initial claims, up from 234 thousand the previous week. Note: The report tomorrow will be for the week ending Aug 26th. Unemployment claims will increase over the next few weeks due to Hurricane Harvey.

• Also at 8:30 AM, Personal Income and Outlays for July. The consensus is for a 0.4% increase in personal income, and for a 0.4% increase in personal spending. And for the Core PCE price index to increase 0.1%.

• At 9:45 AM, Chicago Purchasing Managers Index for August. The consensus is for a reading of 58.0, down from 58.9 in July.

• At 10:00 AM, Pending Home Sales Index for June. The consensus is for a 0.8% increase in the index.

by Calculated Risk on 8/30/2017 04:05:00 PM

CR Note: This is a repeat of a previous post with updated graphs.

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 NSA Case-Shiller National index since 1987 (through June 2017).   The seasonal pattern was smaller back in the '90s and early '00s, and once the bubble burst.

The seasonal swings have declined since the bubble.

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 swings in the seasonal factors 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 8/30/2017 12:13:00 PM

The Case-Shiller house price indexes for June were released yesterday. Zillow forecasts Case-Shiller a month early, and I like to check the Zillow forecasts since they have been pretty close.

From Svenja Gudell at Zillow: July Case-Shiller Forecast: Slowdown Coming in Home Prices

Following months of record highs in the Case-Shiller U.S. National Index for home prices, July is expected to bring a slowdown — to 5.6 percent from June’s 5.8 percent year-over-year, non-seasonally adjusted gain. The monthly gain for July is forecast at 0.2 percent, which is half the 0.4 percent growth that index posted for June.

The 10- and 20-month indices are expected to drop 0.1 percent from June to July, with the 10-city index gaining 4.8 percent in July over the previous year, down from June’s 4.9 percent annual growth, and the 20-city index climbing 5.4 percent annually, down from 5.7 percent in June.

Zillow’s full forecast for July Case-Shiller data is shown below. These forecasts are based on today’s June Case-Shiller data release and the July 2017 Zillow Home Value Index. The July S&P CoreLogic Case-Shiller Indices will not be released officially until Tuesday, September 26.

The year-over-year change for the Case-Shiller National index will probably be smaller in July than in June.

by Calculated Risk on 8/30/2017 08:33:00 AM

From the BEA: Gross Domestic Product: Second Quarter 2017 (Second Estimate)

Real gross domestic product (GDP) increased at an annual rate of 3.0 percent in the second quarter of 2017, according to the "second" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 1.2 percent.

The GDP estimate released today is based on more complete source data than were available for the "advance" estimate issued last month. In the advance estimate, the increase in real GDP was 2.6 percent. With this second estimate for the second quarter, the general picture of economic growth remains the same; increases in personal consumption expenditures (PCE) and in nonresidential fixed investment were larger than previously estimated. These increases were partly offset by a larger decrease in state and local government spending ...
emphasis added

Here is a Comparison of Second and Advance Estimates. PCE growth was revised up from 2.8% to 3.3%. (solid PCE). Residential investment was revised up slightly from -6.8% to -6.5%. This was above the consensus forecast.

by Calculated Risk on 8/30/2017 08:19:00 AM

From ADP:

Private sector employment increased by 237,000 jobs from July to August according to the August 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.
...
“In August, the goods-producing sector saw the best performance in months with solid increases in both construction and manufacturing,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Additionally, the trade industry pulled ahead to lead job gains across all industries, adding the most jobs it has seen since the end of 2016. This could be an industry to watch as consumer spending and wage growth improves.”

Mark Zandi, chief economist of Moody’s Analytics, said, “The job market continues to power forward. Job creation is strong across nearly all industries, company sizes. Mounting labor shortages are set to get much worse. The initial BLS employment estimate is often very weak in August due to measurement problems, and is subsequently revised higher. The ADP number is not impacted by those problems.”

This was above the consensus forecast for 182,000 private sector jobs added in the ADP report. 

The BLS report for August will be released Friday, and the consensus is for 180,000 non-farm payroll jobs added in August.

by Calculated Risk on 8/30/2017 07:00:00 AM

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

Mortgage applications decreased 2.3 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending August 25, 2017.

... The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index decreased 5 percent compared with the previous week and was 4 percent higher than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) decreased to its lowest level since November 2016, 4.11 percent, from 4.12 percent, with points increasing to 0.43 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.

Refinance activity will not pick up significantly unless mortgage rates fall well below 4%.


The second graph shows the MBA mortgage purchase index.

According to the MBA, purchase activity is up 4% year-over-year.

by Calculated Risk on 8/29/2017 07:22:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Now Easily into "High 3's"

It's one thing for the highly competitive environment of "rate table" advertising (where lenders compete and you get confused) to be reporting mortgage rates  approaching the mid 3's. In fact, in that arena, rates have been in the 3% range for quite some time. Whether or not you'd qualify or even be interested in the specific scenario that is conducive to such rates is another story.

It's an entirely different thing for me to be telling you that rates are now easily into the high 3's, because I'm talking about the most prevalently-quoted conventional 30yr fixed rates for the average top-tier scenario across all lenders.  3.875% is now a given at almost any well-priced lender, provided you have a high credit score and a decent amount of equity.  3.75% certainly isn't out of the question for the best scenarios, and the aggressive lenders have no issues quoting 3.625% today for perfectly-aligned stars.

With all of the above having been said, please keep in mind that just a few "hits" to your scenario (slightly lower credit, lower downpayment, less aggressive lender) and you shouldn't be surprised to see a "4%" as the first number in your 30yr fixed rate quote instead of a "3%."
emphasis added

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 August. This report is for private payrolls only (no government). The consensus is for 182,000 payroll jobs added in August, up from 178,000 added in July.

• At 8:30 AM, Gross Domestic Product, 2nd quarter 2017 (Second estimate). The consensus is that real GDP increased 2.8% annualized in Q2, up from advance estimate of 2.6%.

by Calculated Risk on 8/29/2017 03:41:00 PM

My thoughts are with the people of south Texas.

There will be some economic impacts from Hurricane Harvey (housing, oil, etc).

On housing, my initial expectations is that new home sales and housing starts will decline in the September report. Houston and south Texas are a major portion of starts and new home sales, and it will take some time to recover. We will probably also see a decline in existing home sales. We can't look back at Hurricane Katrina for guidance on housing because Katrina happened just after the housing bubble peaked - so starts and sales were already declining.

We can look back at Katrina (and Rita) for the impact on unemployment claims.

The following graph shows the 4-week moving average of weekly claims since 2000.

Click on graph for larger image.

The dashed line on the graph is the current 4-week average.

Hurricane Katrina made landfall on Aug 29, 2005.  Unemployment claims moved higher over the next month, and stayed elevated for a couple of months.

Note that claims also spiked following 9/11 and after Hurricane Sandy in late October 2012.  The increase following Sandy was significant, but only lasted a few weeks (so the 4-week average didn't increase as much as for Katrina).

My expectation is the 4-week average of claims will increase from the current level of 238,000 to over 300,000 over the next month.