by Calculated Risk on 1/09/2018 02:47:00 PM

The Fed's Household Debt Service ratio through Q3 2017 was released on today: Household Debt Service and Financial Obligations Ratios. I used to track this quarterly back in 2005 and 2006 to point out that households were taking on excessive financial obligations.

These ratios show the percent of disposable personal income (DPI) dedicated to debt service (DSR) and financial obligations (FOR) for households. Note: The Fed changed the release in Q3 2013.

The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income.

The DSR is divided into two parts. The Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income. The Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. The Mortgage DSR and the Consumer DSR sum to the DSR.

This data has limited value in terms of absolute numbers, but is useful in looking at trends. Here is a discussion from the Fed:

The limitations of current sources of data make the calculation of the ratio especially difficult. The ideal data set for such a calculation would have the required payments on every loan held by every household in the United States. Such a data set is not available, and thus the calculated series is only an approximation of the debt service ratio faced by households. Nonetheless, this approximation is useful to the extent that, by using the same method and data series over time, it generates a time series that captures the important changes in the household debt service burden.

Click on graph for larger image.

The graph shows the Total Debt Service Ratio (DSR), and the DSR for mortgages (blue) and consumer debt (yellow).

The overall Debt Service Ratio increased in Q3, and has been moving up slowly from the recent record low.  Note: The financial obligation ratio (FOR) also increased in Q3.

The DSR for mortgages (blue) are near the low for the last 35 years.  This ratio increased rapidly during the housing bubble, and continued to increase until 2007. With falling interest rates, and less mortgage debt (mostly due to foreclosures), the mortgage ratio has declined significantly.

The consumer debt DSR (yellow) has been increasing for the last five years.

This data suggests aggregate household cash flow has improved significantly since the great recession, but has started to decline slightly recently.

by Calculated Risk on 1/09/2018 12:47:00 PM

This is a key distressed market to follow since Las Vegas saw the largest price decline, following the housing bubble, of any of the Case-Shiller composite 20 cities.

The Greater Las Vegas Association of Realtors reported Even With Tight Housing Supply, 2017 Was a Strong Year for Local Home Sales; GLVAR Housing Statistics for December 2017

Despite a tight housing supply, the Greater Las Vegas Association of REALTORS® (GLVAR) reported today that 2017 was one of the best years on record for local home sales and that home prices continued to increase from the previous year.
...
By the end of December, GLVAR reported 3,827 single-family homes listed for sale without any sort of offer. That’s down 35.7 percent from one year ago. For condos and townhomes, the 656 properties listed without offers in December represented a 27.9 percent drop from one year ago.

The total number of existing local homes, condos and townhomes sold during December was 3,204. Compared to one year ago, December sales were down 3.5 percent for homes and down 14.8 percent for condos and townhomes.

According to GLVAR, the 46,598 total properties sold during 2017 make it the third best sales year on record and the best year for existing local home sales since 2011. The 2017 sales total exceeds the 41,720 such properties sold in 2016. Last year’s total ranks just below the 47,685 sales recorded in 2009 and the record of 48,798 existing local properties sold in 2011, when prices were bouncing along a post-recession bottom and investors were dominating the market.
...
GLVAR reported that 25.7 percent of all local properties sold in December were purchased with cash, compared to 28.7 percent one year ago. That’s less than half of the February 2013 peak of 59.5 percent, indicating that cash buyers and investors are still active, but playing a smaller role in the local housing market.

At the same time, the number of so-called distressed sales continues to decline. GLVAR said short sales and foreclosures combined accounted for 3.6 percent of all existing local home sales in December, compared to 11 percent of all sales one year ago.

“What a dramatic change from five or six years ago,” Bishop added. “Back then, foreclosures and short sales accounted for about three out of every four homes we sold here in Southern Nevada.”
emphasis added

1) Overall sales were down year-over-year.

2) Active inventory (single-family and condos) is down sharply from a year ago.

3) Fewer distressed sales.

by Calculated Risk on 1/09/2018 10:07:00 AM

From the BLS: Job Openings and Labor Turnover Summary

The number of job openings was little changed at 5.9 million on the last business day of November, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and separations were little changed at 5.5 million and 5.2 million, respectively. Within separations, the quits rate was unchanged at 2.2 percent and the layoffs and discharges rate was little changed 1.1 percent. ...

The number of quits was little changed at 3.2 million in November. The quits rate was 2.2 percent. The number of quits was little changed for total private and increased for government.
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 November, the most recent employment report was for December.

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 November to 5.879 million from 5.925 in October.

The number of job openings (yellow) are up 4.4% year-over-year.

Quits are up 3.1% year-over-year. These are voluntary separations. (see light blue columns at bottom of graph for trend for "quits").

Job openings are mostly moving sideways at a high level, and quits are increasing year-over-year.  This is a solid report.

by Calculated Risk on 1/08/2018 07:02:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Back Near Recent Highs

Mortgage rates rose today, largely due to bond market movement from the end of last week that never made it onto last week's rate sheets. ... Lenders normally need to see a certain amount of market movement by a certain time of day before issuing mid-day reprices, and Friday's weakness wasn't quite big enough.

All that having been said, the movements in question are small enough that they're mainly affecting closing costs in most cases (as opposed to actual interest rates). As such, most borrowers are still seeing top tier conventional 30yr fixed quotes in the 4.0-4.125% neighborhood. But the closing costs associated with those rates are just about as high as they've been since early 2017.
emphasis added

Tuesday:
• At 6:00 AM ET, NFIB Small Business Optimism Index for December.

• At 10:00 AM, Job Openings and Labor Turnover Survey for November from the BLS. Jobs openings decreased in October to 5.996 million from 6.177 in September. The number of job openings were up 7.3% year-over-year, and Quits were up 3.3% year-over-year.

by Calculated Risk on 1/08/2018 03:32:00 PM

Black Knight released their Mortgage Monitor report for November today. According to Black Knight, 4.55% of mortgages were delinquent in November, up from 4.46% in November 2016. The increase was primarily due to the hurricanes. Black Knight also reported that 0.66% of mortgages were in the foreclosure process, down from 0.98% a year ago.

This gives a total of 5.21% delinquent or in foreclosure.

Press Release: Black Knight’s Mortgage Monitor: Tappable Equity at All-Time High, But Tax Code Changes Could Impact Homeowners’ Utilization

Today, the Data & Analytics division of Black Knight, Inc. released its latest Mortgage Monitor Report, based on data as of the end of November 2017. This month, Black Knight finds that tappable equity – the amount of equity available for homeowners to borrow against before reaching a maximum 80 percent total loan-to-value (LTV) ratio – is at an all-time high. However, as Black Knight Data & Analytics Executive Vice President Ben Graboske explained, recent changes to the U.S. tax code may have implications for homeowners’ utilization of that equity.

“As of the end of Q3 2017, 42 million homeowners with a mortgage now have an aggregate of nearly $5.4 trillion in equity available to borrow against,” said Graboske. “That is an all-time high, and up more than $3 trillion since the bottom of the market in 2012. Over 80 percent of all mortgage holders now have available equity to tap, whether via first-lien cash-out refinances or home equity lines of credit (HELOCs). We’ve noted in the past that as interest rates rise from historic lows, HELOCs represented an increasingly attractive option for these homeowners to access their available equity without relinquishing interest rates below today’s prevailing rate on their first-lien mortgages. However, with the recently passed tax reform package, interest on these lines of credit will no longer be deductible, which increases the post-tax expense of HELOCs for those who itemize. While there are obviously multiple factors to consider when identifying which method of equity extraction makes more financial sense for a given borrower, in many cases, for those with high unpaid principal balances who are taking out lower line amounts, the math still favors HELOCs. However – assuming interest on cash-out refinances remains deductible – for low-to-moderate UPB borrowers taking out larger amounts of equity, the post-tax math for those who will still itemize under the increased standard deduction may now favor cash-out refinances instead, even if the result is a slight increase to first-lien interest rates.

“As rates continue to rise and the cost associated with increasing the rate on an entire first-lien balance rises as well, the benefit pendulum will likely swing back toward HELOCs. Even so, the change could certainly impact HELOC lending volumes and loan amounts in the coming months and years. To a certain degree, the same question holds true for cash-out refinances, since tax debt for homeowners who will no longer itemize becomes generally more expensive without mortgage interest deduction in the equation. These refinances will likely be an attractive source of secured debt in the future, but increased post-tax costs may have a negative impact on originations. That said, it still remains to be seen whether and to what extent tax costs will impact borrower decisions in terms of either HELOCs or cash-out refinances. At this point, only time will tell.”

The increase in equity, driven by rising home prices, has also continued to shrink the population of underwater borrowers who owe more on their mortgages than their homes are worth. The number of underwater borrowers declined by 800,000 over the first nine months of 2017, a 37 percent decline in negative equity since the start of the year. Only 2.7 percent of homeowners with a mortgage (approximately 1.36 million borrowers) now owe more than their home is worth, the lowest such rate since 2006. Though still elevated from pre-recession levels, the negative equity rate continues to normalize. Even so, home prices in large portions of the country remain below pre-recession peaks. While 36 states and 70 percent of Core Based Statistical Areas (CBSAs) have now surpassed pre-recession home price peaks, 43 of the nation’s 100 largest markets still lag behind.
emphasis added

Click on graph for larger image.

This graphic from Black Knight shows the number of homeowners with negative equity over time.

From Black Knight:

• The number of underwater borrowers declined by 800K over the first nine months of 2017, a 37 percent decline since the start of the year

• Only 2.7 percent of homeowners with a mortgage (1.36M) now owe more on their mortgages than their homes are worth, the lowest such rate since 2006

• Though the national negative equity rate remains elevated from pre-recession levels, it is certainly normalizing

There is much more in the mortgage monitor.

by Calculated Risk on 1/08/2018 12:34:00 PM

Update through December: The prime working age population peaked in 2007, and bottomed at the end of 2012. As of December 2017, according to the BLS, there were still fewer people in the 25 to 54 age group than in 2007.

Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the "baby boomer" generation, the movement of younger cohorts into the prime working age is another key story. Here is a graph of the prime working age population (25 to 54 years old) from 1948 through December 2017.

Note: This is population, not work force.

Click on graph for larger image.

There was a huge surge in the prime working age population in the '70s, '80s and '90s.

The prime working age labor force grew even quicker than the population in the '70s and '80s due to the increase in participation of women. In fact, the prime working age labor force was increasing 3%+ per year in the '80s!

So when we compare economic growth to the '70s, '80, or 90's we have to remember this difference in demographics (the '60s saw solid economic growth as near-prime age groups increased sharply).

The good news is the prime working age group should start growing at 0.5% per year - and this should boost economic activity.

Note: Demographics impact the unemployment rate and also appear to impact inflation.  That is why I look back to the mid-60s - when the prime age population was growing slowly - to compare somewhat to today.  In the '60s, the unemployment rate bottomed at 3.4% (we could see something close to that again), and inflation was below 2% for the first half of the decade.  The large cohort currently moving into the prime working age is larger than the baby boom in absolute numbers, but not close as a percentage of the population.   So any demographic impact on the unemployment rate and inflation going forward should be much less than in the '70s.

by Calculated Risk on 1/08/2018 10:06:00 AM

Here is another update on framing lumber prices. Early in 2013 lumber prices came close to the housing bubble highs - and prices are once again near the bubble highs.

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

Prices in early 2018 are up solidly year-over-year and might exceed the housing bubble highs in the Spring of 2018.  Note: CME prices hit an all time high briefly in November.

Click on graph for larger image in graph gallery.

Right now Random Lengths prices are up 22% from a year ago, and CME futures are up about 46% year-over-year.

There is a seasonal pattern for lumber prices. Prices frequently peak around May, and bottom around October or November - although there is quite a bit of seasonal variability.

It looks like we will see record prices this year.

by Calculated Risk on 1/07/2018 08:00:00 PM

Weekend:
• Schedule for Week of Jan 7, 2018

Monday:
• 3:00 PM ET, Consumer Credit from the Federal Reserve. The consensus is for consumer credit to increase $18.0 billion in November.

From CNBC: Pre-Market Data and Bloomberg futures: S&P 500 are up 2, and DOW futures are up 67 (fair value).

Oil prices were up over the last week with WTI futures at $61.57 per barrel and Brent at $67.72 per barrel.  A year ago, WTI was at $54, and Brent was at $56 - so oil prices are up solidly year-over-year.

Here is a graph from Gasbuddy.com for nationwide gasoline prices. Nationally prices are at $2.49 per gallon. A year ago prices were at $2.38 per gallon - so gasoline prices are up 11 cents per gallon year-over-year.

by Calculated Risk on 1/07/2018 11:32:00 AM

A few comments from Steven Kopits of Princeton Energy Advisors LLC on Jan 5, 2017:

• Total US oil rigs were down 5 to 742 this week

• Horizontal oil rigs declined again, -2 to 650

• The reticence of operators to add rigs in the face of surging oil prices is remarkable. It suggests we are seeing a second inflection point with even greater restraint from operators. (The first inflection point for this cycle occurred in July.)br />
• Oil price bears will find no comfort in this report. Expect oil prices to continue to rise until we see life in the horizontal rig count.
...
• Incredible price action again this week, with WTI breaching the $62 threshold, and the Brent spread holding around $6.50.

Click on graph for larger image.

CR note: This graph shows the US horizontal rig count by basin.

Graph and comments Courtesy of Steven Kopits of Princeton Energy Advisors LLC.

by Calculated Risk on 1/06/2018 08:01:00 AM

The key economic reports this week are December retail sales and the Consumer Price Index (CPI).

----- Monday, Jan 8th -----
3:00 PM: Consumer Credit from the Federal Reserve. The consensus is for consumer credit to increase $18.0 billion in November.

----- Tuesday, Jan 2nd -----
6:00 AM ET: NFIB Small Business Optimism Index for December.

10:00 AM ET: Job Openings and Labor Turnover Survey for November from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings decreased in October to 5.996 million from 6.177 in September.

The number of job openings (yellow) were up 7.3% year-over-year, and Quits were up 3.3% year-over-year.

----- Wednesday, Jan 3rd -----
7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

----- Thursday, Jan 4th -----
8:30 AM: The initial weekly unemployment claims report will be released. The consensus is for 245 thousand initial claims, down from 250 thousand the previous week.

8:30 AM: The Producer Price Index for December from the BLS. The consensus is a 0.2% increase in PPI, and a 0.2% increase in core PPI.

----- Friday, Jan 5th -----
8:30 AM ET: Retail sales for December will be released.  The consensus is for a 0.5% increase in retail sales.

This graph shows the year-over-year change in retail sales and food service (ex-gasoline) since 1993. Retail and Food service sales, ex-gasoline, increased by 5.0% on a YoY basis in November.

8:30 AM: The Consumer Price Index for December from the BLS. The consensus is for a 0.1% increase in CPI, and a 0.2% increase in core CPI.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for November.  The consensus is for a 0.3% increase in inventories.