by Calculated Risk on 6/14/2018 11:09:00 AM

A few excerpts from Tim Duy at Fed Watch: FOMC Recap

The Federal Open Market Committee (FOMC) completed their June meeting with a 25 basis point rate hike, bringing the target range for the federal funds rate to 1.75-2.0 percent. The accompanying Summary of Economic Projections (SEP) revealed a modestly more optimistic outlook, as expected. The improving outlook prompted an upward revision to rate hike expectations with the median policymaker anticipating four rate hikes this year, up from three in March. The Fed dropped the explicit forward guidance language in the statement as they work to encourage market participants to undertake a more nuanced, data-driven approach to assessing the future path of rate hikes.

With the economy chugging along at a respectable clip that could exceed 4 percent in the second quarter, the Federal Reserve upgraded its assessment of growth from “moderate” to “solid.” Expected growth for 2018 as a whole rose from 2.7 to 2.8 percent while the unemployment forecast fell from 3.8 percent to 3.6 percent. If history is any guide, that forecast remains too pessimistic given the expected pace of growth this year.
…
Bottom Line: Pay attention to the interplay of the rate and economic forecasts and the flow of data. The pace of data will almost certainly not slow sufficiently to prevent the Fed from hiking in September and probably December. I would say September is essentially a lock at this point. I also think you need to pencil in rate hikes in March and June of 2019. Recognize though that by mid-2019 the data might reflect the lagged impact of past tightening and the yield curve is likely to be fairly flat; both factors would slow the pace of rate hikes. The Fed will face a more difficult choice if the data holds strong while the yield curve inverts.

by Calculated Risk on 6/14/2018 08:48:00 AM

On a monthly basis, retail sales increased 0.8 percent from April to May (seasonally adjusted), and sales were up 5.9 percent from May 2017.

From the Census Bureau report:

Advance estimates of U.S. retail and food services sales for May 2018, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $502.0 billion, an increase of 0.8 percent from the previous month, and 5.9 percent above May 2017. ... The March 2018 to April 2018 percent change was revised from up 0.2 percent to up 0.4 percent.

Click on graph for larger image.

This graph shows retail sales since 1992. This is monthly retail sales and food service, seasonally adjusted (total and ex-gasoline).

Retail sales ex-gasoline were up 0.7% in May.

The second 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 4.9% on a YoY basis.

The increase in May was above expectations, and sales in March and April, combined, were revised up.

by Calculated Risk on 6/14/2018 08:33:00 AM

The DOL reported:

In the week ending June 9, the advance figure for seasonally adjusted initial claims was 218,000, a decrease of 4,000 from the previous week's unrevised level of 222,000. The 4-week moving average was 224,250, a decrease of 1,250 from the previous week's unrevised average of 225,500.
emphasis added

The previous week was unrevised.

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 224,250.

This was lower than the consensus forecast. The low level of claims suggest few layoffs.

by Calculated Risk on 6/13/2018 05:53:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Higher Following Fed Forecasts

Mortgage rates moved higher today, following the Fed's much-anticipated policy announcement. Although the Fed changed quite a few words from the announcement's previous iteration (far more than normal), it wasn't the announcement itself that did the damage. Rather, it was the Fed members' economic projections, which include an assessment of where the Fed Funds Rate will likely be at the end of the next few years.

Specifically, a few of the Fed members who'd been holding out for slightly lower rates in 2018 moved their forecasts up enough to increase the odds of a 4th rate hike by December. … The net effect was a slight increase in rates that leaves us a little bit closer to the 7-year highs seen in mid-May. [30YR FIXED - 4.625%-4.75%]
emphasis added

Thursday:
• At 8:30 AM ET, Retail sales for May will be released.  The consensus is for a 0.4% increase in retail sales. Retail and Food service sales, ex-gasoline, increased by 4.0% on a YoY basis.

• Also at 8:30 AM, The initial weekly unemployment claims report will be released.  The consensus is for 224 thousand initial claims, up from 222 thousand the previous week.

by Calculated Risk on 6/13/2018 02:15:00 PM

Statement here.

Powell press conference video here.

On the projections, the changes were minor.   The projections for GDP in 2018 are near the top of the March range, and the bottom of the range was revised up slightly.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2018	2019	2020
Jun 2018	2.7 to 3.0	2.2 to 2.6	1.8 to 2.0
Mar 2018	2.6 to 3.0	2.2 to 2.6	1.8 to 2.1
Dec 2017	2.2 to 2.6	1.9 to 2.3	1.7 to 2.0

¹ Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 3.8% in May. So the unemployment rate projection for 2018 was revised down slightly.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2018	2019	2020
Jun 2018	3.6 to 3.7	3.4 to 3.5	3.4 to 3.7
Mar 2018	3.6 to 3.8	3.4 to 3.7	3.5 to 3.8
Dec 2017	3.7 to 4.0	3.6 to 4.0	3.6 to 4.2

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of April, PCE inflation was up 2.0% from April 2017.  PCE inflation projections were revised up for 2018.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2018	2019	2020
Jun 2018	2.0 to 2.1	2.0 to 2.2	2.1 to 2.2
Mar 2018	1.8 to 2.0	2.0 to 2.2	2.1 to 2.2
Dec 2017	1.7 to 1.9	2.0	2.0 to 2.1

PCE core inflation was up 1.8% in April year-over-year. Core PCE inflation was revised up slightly for 2018.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2018	2019	2020
Jun 2018	1.9 to 2.0	2.0 to 2.2	2.1 to 2.2
Mar 2018	1.8 to 2.0	2.0 to 2.2	2.1 to 2.2
Dec 2017	1.7 to 1.9	2.0	2.0 to 2.1

by Calculated Risk on 6/13/2018 02:02:00 PM

FOMC Statement:

Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Indicators 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 further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained 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 maximum employment objective and its symmetric 2 percent inflation objective. 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.

Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams.
emphasis added

by Calculated Risk on 6/13/2018 09:49:00 AM

Update: Watching existing home "for sale" inventory is very helpful. As an example, the increase in inventory in late 2005 helped me call the top for housing.

And the decrease in inventory eventually helped me correctly call the bottom for house prices in early 2012, see: The Housing Bottom is Here.

And in 2015, it appeared the inventory build in several markets was ending, and that boosted price increases. 

I don't have a crystal ball, but watching inventory helps understand the housing market.

The graph below shows the year-over-year (YoY) change for non-contingent inventory in Houston, Las Vegas and Sacramento (all through May 2018), and also Phoenix (through April) and total existing home inventory as reported by the NAR (through April 2018).

Click on graph for larger image.

This shows the YoY change in inventory for Houston, Las Vegas, Phoenix, and Sacramento.  The black line is the year-over-year change in inventory as reported by the NAR.

Note that inventory in Sacramento was up 30% year-over-year in May (inventory was still very low), and has increased YoY for eight consecutive months. 

Also note that inventory is still down 12% YoY in Las Vegas (red), but the YoY decline has been getting smaller - and inventory in Vegas will probably be up YoY very soon.

Houston is a special case, and inventory was up for several years due to lower oil prices, but declined YoY recently as oil prices increased.

Inventory is a key for the housing market, and I will be watching inventory for the impact of the new tax law and higher mortgage rates on housing.   Currently I expect national inventory to be up YoY by the end of 2018 (but still be low).  

This is not comparable to late 2005 when inventory increased sharply signaling the end of the housing bubble, but it does appear that inventory is bottoming nationally (and has already bottomed in some areas like California).

by Calculated Risk on 6/13/2018 07:00:00 AM

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

Mortgage applications decreased 1.5 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending June 8, 2018. Last week’s results included an adjustment for the Memorial Day holiday.

... The Refinance Index decreased 2 percent from the previous week. The seasonally adjusted Purchase Index decreased 2 percent from one week earlier. The unadjusted Purchase Index increased 9 percent compared with the previous week and was 0.2 percent lower than the same week one year ago. ...

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.83 percent from 4.75 percent, with points increasing to 0.53 from 0.46 (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 50 bps or more from the recent level.

The second graph shows the MBA mortgage purchase index

According to the MBA, purchase activity is down 0.2% year-over-year.

by Calculated Risk on 6/12/2018 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 8:30 AM, The Producer Price Index for May from the BLS. The consensus is a 0.3% increase in PPI, and a 0.2% increase in core PPI.

• At 2:00 PM, FOMC Meeting Announcement. The FOMC is expected to increase the Fed Funds rate 25 bps at this meeting.

• At 2:00 PM, FOMC Forecasts This will include the Federal Open Market Committee (FOMC) participants' projections of the appropriate target federal funds rate along with the quarterly economic projections.

• At 2:30 PM, Fed Chair Jerome Powell holds a press briefing following the FOMC announcement.

From SacRealtor.org: May 2018 Statistics – Sacramento Housing Market – Single Family Homes

May closed with 1,730 sales, a 9% increase from April’s 1,587. Compared to May 2017 (1,731), the figure is nearly unchanged. Of the 1,730 sales this month, 242 (14%) used cash financing, 1,056 (59.3%) used conventional, 290 (16.8%) used FHA, 96 (5.5%) used VA and 76 (4.4%) used Other† types of financing.
...
Active Listing Inventory increased 20.5% from 2,082 to 2,509 units and the Months of Inventory increased from 1.3 to 1.5 Months. This figure represents the amount of time (in months) it would take for the current rate of sales to deplete the total active listing inventory. [CR Note: Active inventory is up 29.7% year-over-year]

The Average DOM (days on market) dropped from 23 to 20 month to month and the Median DOM dropped from 10 to 9. “Days on market” represents the days between the initial listing of the home as “active” and the day it goes “pending.” Of the 1,730 sales this month, 80.9% (1,400) were on the market for 30 days or less and 93.1% (1,611) were on the market for 60 days or less.
emphasis added

CR Note: Inventory is still low, but now increasing significantly year-over-year in Sacramento.

by Calculated Risk on 6/12/2018 04:26:00 PM

Two years ago I asked: Will the Rebound in Oil Prices Rescue the Houston Housing Market?

When inventory was declining just about everywhere, inventory was rising in Houston as oil prices declined a few years ago.   More recently, as  oil prices rebounded, inventory has been declining year over year.

The Houston Association of Realtors (HAR) just released data for May.

In May, active listing were down 1.4% year-over-year compared to May2017.   The current level isn't unusually high for the Houston market (inventory was over 50,000 in 2010), but inventory increased significantly when oil prices were falling.

Click on graph for larger image in graph gallery.

This graph shows the number of active listings in Houston since January 2013.

With higher oil prices, inventory has stopped increasing - after increasing for the previous three years.

It does seem the rebound in oil prices has helped the Houston market.